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Executives

Abhijit Bhattacharya – Head, IR

Frans van Houten – CEO

Ron Wirahadiraksa – CFO

Analysts

Andreas Willi – JPMorgan

Simon Smith – Credit Suisse

Martin Wilkie – Deutsche Bank

Ben Uglow – Morgan Stanley

Gaël de-Bray – Société Générale

Olivier Esnou – Exane BNP Paribas

Sjoerd Ummels – ING

Daniel Cunliffe – RBS

Christel Monot – UBS

Martin Prozesky – Sanford Bernstein

Bill Mackie – Berenberg Bank

Andrew Carter – RBC

Koninklijke Philips Electronics N.V. (PHG) Q3 2011 Earnings Conference Call October 17, 2011 5:00 AM ET

Operator

Welcome to the Royal Philips Electronics Third Quarter Results 2011 Conference Call on Monday, 17th of October, 2011. During the introduction hosted by Mr. Frans van Houten, CEO; and Mr. Ron Wirahadiraksa, 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 Electronics.

I will now hand the conference to Mr. Abhijit Bhattacharya, Head of Investor Relations. Please go ahead.

Abhijit Bhattacharya

Good morning, ladies and gentlemen. Welcome to this conference call on the third quarter results for 2011 for Royal Philips Electronics.

I am here with Philips CEO, Frans van Houten; and our CFO, Ron Wirahadiraksa. In a moment Frans will take you through his introductory remarks and provide an update on our performance. Ron will then shed more light on the details of the financial performance during the quarter. After this, both Frans and Ron will be happy to take your questions.

As usual, our press release and the accompanying information slide decks were published at 7:00 AM CET this morning. Both documents are now available for download from our Investor Relations website. We will also make available a full transcript of this conference call on the Investor Relations website by tomorrow morning at the latest.

With that, let me hand over to Frans to start proceedings for the day.

Frans van Houten

Thank you, Abhijit. Welcome and thank you all for joining us today. Two quarters into my tenure as CEO, I am encouraged that our organization is responding well to our large multiyear change and performance program Accelerate! Our renewed focus on innovation and customer intimacy, supported by a changing culture that embraces entrepreneurship and accountability is driving the organizational changes needed to achieve our goals. We are beginning to see the impact on growth of stepping up the investments to accelerate meaningful innovation and win more customers, while at the same time addressing structural change.

The implementation of the Philips Business System is beginning to improve granular performance management on the basis of which we are initiating corrective actions faster, including management changes in certain businesses and markets. What remains clear, however, is that a significant amount of work still needs to be done to transform Philips to deliver the shareholder value. We believe we can achieve.

As we are in the early stages of change, given the ongoing economic challenges, especially with regard to the unresolved eurozone crisis, and because operational issues and risk continue to impact our business, our financial results do not fully reflect the hard work of our teams yet. The good news, however, is that in the short 90 days or so, since I first outlined for you the initiatives that we are taking on, we are encouraged by the response of our employees and we are making steady progress.

Let me now walk you through a few of the details. Our results for this quarter have been affected by operational issues as well as raw material price increases, which have resulted in lower gross margins than planned, particularly in Lighting. At the same time, we are stepping up innovation and sales related expenses to drive growth. In Healthcare, we are rolling out a number of new products that will better align us with the future of the industry. We are seeing the positive order book and revenue impact from this product launches. And while the investments in selling expenses in speeding up innovation and higher regulatory cost negatively impacted our earnings this quarter, we believe that this is a short-term consequence of our strategy to build our market leadership. Having said that, we are closely monitoring both, the overall economic environment and government policy and the potential impact on the Healthcare business in the medium term.

We continue to reshape our Consumer Lifestyle portfolio for profitable growth by repositioning the business towards the Health and Well-Being domain, and by driving global scale and category leadership. We are reducing our exposure to consumer electronics and we are focusing here on more attractive growing categories.

In our growth businesses, we continue to invest and are seeing this investment correlate to better sales growth. The negotiations with TPV for the creation of the television joint venture are intense and constructive. Although these negotiations are taking longer than expected, we continue to work together to come to definitive agreements soon. For the eventuality that a final agreement can not be reached, Philips will consider its alternative options. The process of disentangling the TV business from the rest of Consumer Lifestyle is progressing well and according to plan.

In Lighting, we have put through price increases to compensate for the affect of the increase in raw material prices, the full effect of which will be visible in Q4. At the same time, we are significantly stepping up innovation initiative in growth areas and more specifically preparing Lighting for the transformation to energy efficient LED lighting solutions and to sustain our global lighting leadership.

In terms of cost cutting, we have scrutinized our processes and overhead cost. By reducing complexity and overhead cost, we will save EUR800 million, which has now been detailed and we are in the process of deploying it across the organization in the countries affected. About 60% of these cost savings are people related and hence will lead to the loss of approximately 4,500 jobs. And I find this regrettable. But this is an inevitable step to improve our operating model to become a lean, agile, entrepreneurial and competitive company. Remaining 40% of the cost relates to other structural cost savings like in real estate, IT cost, et cetera.

We also continue to make good progress on our 2 billion share buyback program. 24% has been completed at quarter-end.

Now before I turn the call over to Ron to walk you through the financial details, I would like to state that while we are not yet satisfied with our current financial performance, I do think that it is important to reiterate that we are convinced that the opportunities for operational improvement and the actions we are taking will unlock the potential for our portfolio and set the stage for us to achieve our 2013 financial objectives.

And, with that, I would like to pass it over to Ron.

Ron Wirahadiraksa

Thank you, Frans. Good morning and welcome to all of you on the call. I will begin by giving you some colors on the developments in the markets we serve.

Let me start with Healthcare, where in the US, hospitals are becoming more efficient, and as result the financial positions are strengthening. This coupled with improvements in the US credit markets as well as pent-up demand for upgrading to new and more efficient technologies is outweighing some of the concerns and uncertainty around the USAID budget control and the Affordable Care Act. This leads to a growth in hospital construction activity. This hospital construction activity in the US continues to rise projected at 5% in 2011 and 6% for 2012, as administrators prepare for the influx of newly insured patients. And current lower interest rates are fueling these infrastructure advancements. Nevertheless, there continues to be some concern among hospital CEOs around Healthcare Reform and possible related reimbursement cuts. While we do continue to see pent-up demand, uncertainty remains, and it’s an issue we continue to monitor very closely.

In Europe, markets in Southern Europe continued to be weak, given the economic situation prevalent in those geographies, as well as the austerity measures undertaken by various governments. With the current situation in Europe, we remain cautious on the near-term outlook. In our growth geographies, we continue to see momentum as more investments continue to be directed to these markets, resulting in robust demand.

For the Consumer Lifestyle markets, consumer confidence is still low in North America and has weakened in the past quarters. Confidence among US consumers saw the lowest level in more than two years in Q3 as the outlook for employment and income declined. In Europe, the weakness is predominantly in Southern Europe, while Northern European markets are registering a low growth. Markets in Asia Pacific remain strong. The weak market sentiment has had a larger impact on the Lifestyle Entertainment markets compared to the health and well-being part of the Consumer Lifestyle portfolio, the latter being Personal Care, Health and Wellness, and Domestic Appliances.

The Lighting market in Q3 was virtually flat compared to the previous year and grew modestly compared to the second quarter of this year, mainly driven by LED product categories and growth geographies. The US and Western Europe continued to see slow GDP growth, though in the US markets we believe that improved construction in nonresidential will benefit the Professional Luminaires market in the second half of 2011. In the Western Europe, both residential and nonresidential construction in Q3 was slow, with the exceptions being Germany, Austria, Switzerland, and France, which showed a slight uptick in the markets for Professional Lamps and Luminaires.

In growth geographies, construction remained strong, especially in Asia Pacific, driving lamps and luminaires markets across categories. China remains a clear growth engine, especially for the Consumer Lamps and Luminaires market with continued strong residential and real estate investments. Vehicle production in Q3 is estimated to have risen slightly compared to a slower Q2, driving incremental growth for the automotive lightings market.

Let me now move to the Philips Group results for the third quarter of 2011. Let me remind you that as of the last quarter of this year, we report a profit and loss on the TV business under discontinued operations and the net operating capital for the business in the balance sheet’s underlying assets held for sale. The cash flow of the TV business is reported under cash flow for discontinued operations. Therefore, all commentary that will follow in terms of sales and earnings at Philips Group level and Consumer Lifestyle sector level does not include Television and related information. Also, when I refer to adjusted EBITA on this call, this represents EBITA excluding restructuring and acquisition related to charges.

Comparable sales in the third quarter grew by 6% when adjusted for currency and portfolio changes. On a geographical basis, comparable sales in our growth geographies grew by 13% in the third quarter. Excluding the affect of a decline of packaged LED sales to these markets, the comparable growth for the quarter for our growth geographies was a strong 16%. The packaged LED business is an OEM business and the products are shipped to destinations, depending on the production plan of our customers; hence this clarification.

Our growth geographies are defined as all markets excluding USA, Canada, Western Europe, Australia, New Zealand, South Korea, and Japan. Sales from these growth geographies increased to 34% of Group revenues compared to 32% for Q3 of last year. In other mature markets, we also saw a strong comparable sales growth of 13% in the quarter, led by growth in Consumer Lifestyle and Lighting. Sales in North America grew by 5% in the quarter on a comparable basis. Western Europe saw a decline in comparable sales of 3% in the quarter, mainly due to the market related weakness I spoke about earlier which affected all of our businesses.

Reported EBITA was EUR368 million or 6.8% of sales, which is lower than the EUR647 million or 11.8% of sales reported for Q3 of last year. The restructuring and acquisition related charges for the third quarter for this year were lower than the third quarter of last year by EUR5 million. Q3 2010 EBITA was favorably impacted by pension plan change of EUR36 million and EUR6 million provisions release. Adjusted EBITA, therefore, was EUR392 million or 7.3% in the quarter compared to EUR640 million or 11.7% for Q3 2010. The decline in the adjusted EBITA was due to declines across the sectors on which I will elaborate in just a few moments.

Net income for the quarter including a negative impact of EUR39 million from discontinued operations and the negative impact of financial income and expenses of EUR173 million compared to Q3 of last year was EUR76 million compared to a net income of EUR524 million in Q3 of last year.

Our cash flow from operating activities for the quarter was an inflow of EUR52 million compared to an inflow of EUR168 million in Q3 of 2010. The year-on-year decrease was largely due to a decrease in earnings of EUR280 million, partly offset by lower working capital requirements and provisions.

With that summary, let me now walk you through the performance of each of our businesses during Q3, starting with Healthcare. Currency comparable equipment order intake grew 5% in Q3 2011 compared to Q3 2010. Order intake was led by a solid performance in the US, where we registered a 6% increase in the order intake on the year-on-year currency comparable basis.

Our growth geographies saw a strong increase where equipment order intake grew by 15%. This was led by India, which saw a 75% currency comparable growth in order intake, Russia with 53%, LatAm with 16%, and China with 6%. These increases were somewhat offset by Europe, which saw a double-digit decline in currency comparable order intake due to weak markets.

On a currency and portfolio comparable basis, our Healthcare business registered a solid year-on-year sales increase of 7%, significantly above the 4% growth registered in Q3 2010.

The Patient Care and Clinical Informatics business had a very strong quarter, registering double-digit sales growth, while the other businesses namely Imaging Systems, Home Healthcare, and Customer Services grew mid single digits. North America saw a promising growth of 8% in the quarter, while growth geographies delivered a strong sales increase of 20%. This was led by China and India, both of which saw a comparable sales increase of above 40%. These results were tampered by a low single digit decline in Europe. Most of Europe saw a moderate declines with the exception of the United Kingdom and the DACH region.

Healthcare reported a solid quarter of EBITA of EUR261 million or 12.6% of sales, compared to EUR282 million or 13.6% of sales in the same period of 2010. Adjusted EBITA was EUR263 million or 12.7% of sales, which is below the EUR288 million or the 13.9% in the same period of last year. The lower earnings in this quarter was primarily due to additional selling expenses spend and regulatory related expenses.

Consumer Lifestyle sales when adjusted for currency and portfolio changes grew by 1% compared to Q3 of last year after four consecutive quarters of declining sales. Excluding the affect of declining license revenues, the sales growth was 2%. The Lifestyle Entertainment business registered a high single digit decline in sales for the quarter, with China and India registering double-digit growth. We are pleased with the continuing momentum of sales growth in Q3 2011 with the Personal Care, Health and Wellness, as well as the Domestic Appliances businesses, which registered high single digits comparable sales growth.

Sales in our growth geographies grew by 14%. This was, offset however by declines in the mature markets, mainly due to weak consumer sentiment and reduced license income.

The reported EBITA at Consumer Lifestyle declined EUR202 million from EUR169 million in the third quarter of 2011. Due to a strong decline in the Lifestyle Entertainment business, investments in advertising and promotion and innovation to drive growth and lower license income in the quarter compared to last year. The adjusted EBITA of this sector was 8.1% in the quarter.

In terms of our TV business, which as explained earlier, is reported as part of discontinued operations, the operating loss for the third quarter was EUR69 million, a deterioration compared to Q3 of 2010, when the operating loss was EUR31 million. The results for Q3, however, were flat compared to Q2 of this year.

Inventory in terms of future sales decreased to 25 days, a 34-day reduction from the 59 days of inventory we reported in Q2 of this year. On page 15 of the press release, we have provided a simple reconciliation to the net income of discontinued operations of a loss of EUR54 million.

In Lighting, comparable sales grew by strong 8% in the quarter compared to Q3 of last year. The increase in sales was led by our growth geographies where sales grew on a comparable basis by over 19%, excluding the impact of the sales of packaged LEDs as I explained earlier. On a more granular basis, sales in China, India, ASEAN, LatAm and the Nordic region, United Kingdom and Ireland, showed good momentum with strong double-digit growth. Sales in North America continued to recover with a mid single digit growth in the growth. Western Europe continued to grow registering a mid single digit comparable sales growth. When taking a deeper look into each business, we continued to see strong sales for our LED products with growth of 32% compared to the same quarter in the previous year. The lamps business saw a strong double-digit growth in the quarter with a significant increase in the sales of LED lamps.

Sales of Professional Luminaires despite the weak construction markets showed double-digit growth for the third consecutive quarter, although pricing remained under pressure. Lighting Systems and Controls delivered mid single digit growth for the quarter, slightly dampened by the destocking in North America. Automotive grew around 7% in the quarter. Sales in Consumer Luminaires continued to remain weak, registering a marginal decline. The consumer markets in Western Europe in particular impacted sales in the quarter.

Luminaires saw a steep decline in revenues in Q3 2011 compared to the same period in the previous year due to a drop in sales for display related LEDs with one major customer. Luminaires have seen a strong increase in its general illumination business, however that hasn’t been enough yet to offset a decline in display applications.

The reported EBITA at Lighting declined to EUR110 million from EUR216 million in Q3 2010. Adjusted EBITA was EUR121 million or 6.4% of sales; a decrease of EUR112 million compared to the third quarter of 2010. This decline in earnings was primarily due to steep declines in luminaires and Consumer Luminaires. Additionally, investments in selling expenses for growth, the impact of increase in raw material prices and mix changes have negatively impacted results in the quarter.

In Q3, Lumileds temporarily halted its manufacturing operations to align inventory levels to the lower revenue levels, which affected the growth margin. Reported EBITA loss at GM&S was EUR106 million, which is in line with our guidance.

Inventory value at the end of Q3 2011 increased EUR298 million in the quarter, mainly attributable to production inventory in Healthcare and Consumer Lifestyle to prepare for Q4 sales. Inventories at Lighting remained flat for the quarter. We will continue to focus our efforts to reduce inventory relative to sales.

Ladies and gentlemen, let me now sum-up where we stand at this point of time. Earlier, Frans gave us some color on how we are driving change at Philips. This is fundamental change. It takes time. And it’s not a quick fix. As a result, we have said before, we do no expect a material performance improvement in the near term as some operational issues and risks remain and as uncertain economic times persist. Our management team, however, is on top of our operational issues and is addressing them. And we are executing on our change plans that will ultimately make Philips a structurally more profitable company.

We are countering certain adverse factors like increase in rare earth prices and mix shifts which are impacting results in the short term through price increases and other measures including efficiency improvement actions.

I would like to leave you with the clear message that Philips is changing and that despite the economic challenges we remain confident in delivering our midterm financial targets by 2013.

Before I end, I would like to remind you that for the company like we do in December of every year in the form of an update, for this year we have planned a conference call with an update on financial reporting and related matters like pensions, et cetera. This will be on the 8th of December.

With that, let me now open the line to your questions, which Frans and I, will be happy to answer. Thanks.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question comes from Andreas Willi from JPMorgan. Please go ahead with your question.

Andreas Willi – JPMorgan

Good morning, gentlemen. My first question relates to restructuring. You have given us a lot of detail in terms of what do you plan to spend and where in the next few years. If you look at the, for example, at the EUR35 million you have put in for 2011 that already seems lower than the divisional guidance you gave in each of the sectors. So maybe you could explain the restructuring for that EUR800 million program; is that all restructuring, or is that restructuring that’s on top of some of the restructuring you plan to do anyway in the sectors; and if I look at the restructuring spending overall in the sectors for the next couple of years that seems to be a relatively limited number compared to just normal ongoing restructuring you have spent in the last few years.

Frans van Houten

Yes, Andreas, thanks for the question. The table in the presentation on page 28 relates specifically to the overhead cost reduction that we have announced this summer and does not include the, let’s say, the usual restructuring related to building down some of the industrial footprint of the traditional Lighting business, so that is separate. Does that answer your question?

Andreas Willi – JPMorgan

Yes. If we look at Q4, you gave EUR50 million guidance for restructuring as part of the EUR800 million program and then you gave numbers as well for all the sectors. Is the numbers you gave for all the sectors is the total or is that to be added to this overhead reduction?

Frans van Houten

So this is the number that is on top of the usual restructuring and it is therefore to be added.

Ron Wirahadiraksa

Again just a clarification Andreas, thanks for the question. The divisional guidance includes the acquisition related charges as well. And further more, we’ll stay with the answer that Frans has just given.

Andreas Willi – JPMorgan

Okay, but not the overhead reductions. And then the follow-up on Lighting and the good growth you saw in the quarter relative to the commentary at the Capital Markets Day in September that implies better growth rate also in the non-LED business, which you had at the Capital Markets Day you said – basically you said that was down which I assume was July, August. Does it imply you had a much better September than you expected in the traditional Lighting business?

Frans van Houten

Yes, we’ve seen particularly a good growth in lamps and in Professional Luminaires. There was somewhat of a very strong push after Q2 which was disappointing in sales in those areas. Of course, as we already indicated, we also had some less favorable growth in developments in Lumileds and Consumer Luminaires. But overall, we’re quite pleased with this performance.

Andreas Willi – JPMorgan

And in terms of the inventory issue, do you think it’s just that the UK a bit more inventory or is the channel. How do you assess the channel in Lighting for inventories?

Frans van Houten

Well, the inventory that we have at Philips can certainly be improved. And I consider this to be part of the operational issues that we need to work on. And I would not correlate it to an industry situation at large. For Lighting, however, the inventory development was actually flat, already reflecting the strong attention that Ron and I are putting on it in the Lighting division.

Andreas Willi – JPMorgan

Thank you very much.

Frans van Houten

You’re welcome.

Operator

Thank you. Our next question comes from Simon Smith from Credit Suisse. Please go ahead with your question.

Simon Smith – Credit Suisse

Hi, thank you. My question was really around the TV business. You’ve obviously highlighted in there that you’re negotiating hard to get a deal done, but you may have to look at alternative options. I just wondered in this environment what you saw as your main alternatives, and if you’re able to share with us any insight as to what potential cost could be to you for a solution?

My follow-up question would then be just with – going on with regard to inventory. Just wondered, if you look at this – the rise in inventory that you’ve seen it in a quarter when you’ve seen such a strong finish in terms of sales, somewhat surprised to see that rise. I just wondered if you could explain the sort of strategy for that particularly in – on the Healthcare side.

And also maybe just again give us the numbers of inventory that you saw for the TV business. I didn’t quite capture what you said was your current situation of inventory relative to where you had been. Thank you.

Frans van Houten

All right. Well, Simon, I will take the first one, and then Ron will talk about the inventory questions that you have.

Indeed, I am a little bit disappointed that it takes longer to come to a conclusion on the negotiations with TPV. I also relate this to the deteriorating environment for TV business globally at large I mean for all the competitors. But the fundamental idea that both TPV and Philips have, that rationale to create this joint venture has not changed. And we commit – we continue to be very committed to come to a conclusion. And so I did wanted to flag in the sense a full disclosure that we have this delay, but we have not changed our focus to try to come to a conclusion. And, therefore, I find it too early to elucidate to you details around the alternative options and we continue – as we continue to focus on making this deal happen in the next months.

Ron Wirahadiraksa

On the inventory, in Lighting, we have seen flat inventories QonQ. We still think we – our inventories in Lighting are too high and that is due to some of the inefficiencies in the supply chain and some other safety stock that we’re holding. On TV, I would say that, as I said earlier on, the days future sales decreased with 25 days. So there is a 34-day reduction and we are pleased by that. And in Lifestyle, we’re building – we’ve built some inventory to cater for the Q4 sales.

Now Q4 is typically always a quite heavy quarter in the year, so that explains the inventory buildup. And we have particularly in Healthcare quite some inventory ramps in front of WIP, a work-in-progress, to deliver the – on the increased demands that we have seen following the introduction of our new product suite, RSNA, last year and that is coming really through this time. Does it answer your question, Simon?

Simon Smith – Credit Suisse

Yes. Thank you very much.

Ron Wirahadiraksa

Thanks.

Operator

Thank you. Our next question comes from Martin Wilkie from Deutsche Bank. Please go ahead with your question.

Martin Wilkie – Deutsche Bank

Yes, good morning. Hi, it’s Martin from Deutsche Bank. Just a couple of questions. Firstly on Lighting, it sounds like the margin in the quarter was hit by lower utilization at Lumileds. And I was wondering if you could let us know when that production restart might kick in and just how big a drag it was for the margin in the quarter. Looking into Q4, presumably we do some positive pricing benefit, but also perhaps that capacity utilization at Lumileds. So just – if you could just walk us through that first.

Then, my second question was just on your commentary, you’re not expecting to realize material performance improvement in the near term. Does that mean that we should think of your savings that you’ve guided to in 2012 as very backend loaded, i.e. those are largely coming in the second half of the year, or do you still see some of those net benefits kicking in, in the first half of 2012? Thanks.

Frans van Houten

All right, Martin. Let me start at it and then again come back to it. So the Lighting margin overall is affected by several factors. First of all, the raw material increase; secondly, mix changes to categories that have somewhat lower margin; and specifically due to some actions among within the Lumileds business. In Lumileds we did a decline in utilization due to a lower volume as we have lower sales in the display category, but also related to transformation to 6-inch and some let’s say older inventory that we’re dealing with. So, of course, we are working very hard to come to structural margin improvement as we worked towards our 2013 midterm targets as communicated before.

With regard to the cost savings – the overhead cost savings, you see on the table on slide 28, in that we see the buildup towards the gross savings of EUR800 million. But we do have to make restructuring efforts for that and there is restructuring costs foreseen, and we also have to do a number of investments to transform the systems and ways of working to make those savings possible. The amount of gross savings versus the restructuring cost and the investments in 2012 are actually pretty close to each other. And, therefore, we do not see net-net a lot of bottom-line improvement yet in that year. And most of the benefits on the net basis then starts to come in from 2013 onwards.

Martin Wilkie – Deutsche Bank

Okay. And just to clarify on Lighting, I think you mentioned at the time of the second quarter that you felt that the Lighting margin in the second half of the year overall will be broadly in line with what we saw in the second quarter. So is that still your sense today or –?

Ron Wirahadiraksa

Yes. Well, as I said, we have implemented the price increases in the second half of the quarter and we expect to be in the fourth quarter towards the end of that at the run rate of price increases that will offset most of the material cost increases. So that’s in general what we have said. I don’t think we have given more guidance than that.

Martin Wilkie – Deutsche Bank

Very good. Thank you very much.

Operator

Thank you. Our next question comes from Ben Uglow from Morgan Stanley. Please proceed with your question.

Ben Uglow – Morgan Stanley

Good morning. I wanted to press you a little bit harder on the TV issue. The change of language in the press release is quite material. And could you just give us a bit more color in terms of your discussions with TPV? What – where are the broadest areas of disagreement? Is it – is there any one single problem, i.e. evaluation or whatever, or is it across the board, price, employee, shareholders? Could you be a little bit more specific as to why this may be delayed? And we’ll put our hold together.

And just the second issue is just on the inventory. It’s said in the press release that this has sort of increased in preparation for Q4, what do you see in the Q4 environment either in terms of Healthcare or Consumer Lifestyle that you believe warrants the higher level of inventory?

Frans van Houten

All right, Ben. Well, yes, I wanted to flag that we are still negotiating together with TPV and we are constructively doing that. Of course, I cannot give you details on exactly those – which terms and conditions? We have still work to do. I do think that we can tell you that on many points we have already achieved agreement, so this is not a situation where we are still miles apart. But a couple of critical points that we need to make sure that we bridge. And if we could not bridge them, then we go to those alternative solutions. So usually in a negotiation, the last bits are the tough ones. And so I hope in the next months that we can finalize this, because one way or another we need to move on, and I’m not prepared to let the situation linger without resolution.

Ron Wirahadiraksa

On the inventory, you see the build above the inventory as global, see in the Q4 seasonality. Although as we have already stated, it’s at a slightly too high inventory level.

Ben Uglow – Morgan Stanley

So that was what I was getting that. So it’s over 18% from around 16.5%. Is that because that’s in Healthcare you’re expecting to launch a number of new products in the fourth quarter? Can you just give me any sense of is there something special about the coming fourth quarter that explains that inventory increase?

Frans van Houten

Yes, but then the fourth quarter for Philips is always a big quarter and so there is always a seasonal pattern that of course we need to prepare for. Healthcare usually is well covered for the sales in the next three months in terms of order book. And therefore all the work-in-progress, the WIP, that Ron explained is there to deliver on that demand. And so we feel quite comfortable about it. And again also in Lifestyle usually the seasonality plays a role. Now having said that, we are not satisfied with the overall level of inventory and we do believe that structurally we need to bring this down to a more healthy level, but that is irrespective of the seasonal ramp-up which is habitual and normal.

Ben Uglow – Morgan Stanley

I was alluding to the fact that year-over-year at the end of the third quarter was still going up. So taking seasonality out, it’s still going up.

Frans van Houten

Yes, and I agree with you that is not good. And so as a part of our operational improvement plan, we also target higher working capital turns. You will find this under the Accelerate! program where we talk about end-to-end effectiveness. We think that the – both the sales and operations planning processes and how we construct our supply chain, we see many opportunities to improve that and how people collaborate on that. But this is just slow in coming. I always expected that, so we didn’t promise you a very quick structural improvement. But please be sure that this has our attention. I think in face-to-face sessions we’ve always flagged that we feel that we can free up a lot of working capital, both generating cash but also enhancing our ROIC.

Ben Uglow – Morgan Stanley

I understood. Thank you very much.

Frans van Houten

You’re welcome, Ben.

Operator

Thank you. Our next question comes from Gaël de-Bray from Société Générale. Please go ahead with your question.

Gaël de-Bray – Société Générale

Yes, good morning. This Gaël de-Bray from SocGen. Thanks for taking my questions. The first one actually relates to you to the details of your cost cutting program. It seems that you’ve reduced the savings expectations for Q4 2011. At the Capital Markets Day you guided for EUR40 million and now it’s just EUR20 million. Same thing for 2012, if I look at the net savings, you expect now it seems that it’s going to be EUR50 million lower than what we initially guided at the Capital Markets Day. So just could you come on this please? And does it mean that you’ve already – that you’re already running late in deploying the savings plan?

And the second question relates to Lighting. How much over the 8% sales growth in Q3 was actually price related? And given that more price rises are expected to flow through in Q4, what should then be the price impact in the fourth quarter? And that would be bit for the time being.

Frans van Houten

All right. Well, on the cost savings, I will ask Ron to speak in a moment. Although, I’d like to observe that besides the structural cost savings, we are also working on discretionary cost savings. On the growth in Lighting, I dare say that this is not price related. This is all volume driven. Thanks to step-ups in efforts in the market and strong traction of our LED energy efficient lighting solutions. We believe that customers want our products. They can save money on their energy bills right off the bat. We see a good traction in those kind of renovation markets. And Ron already mentioned that the brunt of the price increases are actually expected to in lamps for Q4. Now then, back to Ron, on the structural cost savings.

Ron Wirahadiraksa

Yes. So the EUR500 million that we showed you in July or when we talked about in July that was focused on people reduction, so there was a fairly high ratio of restructuring cost to cost savings. For example, EUR375 million restructuring costs to save EUR500 million. But after this, as we reported back on Capital Markets Day, we have identified additional opportunities, and these opportunities require a somewhat more of a fundamental change in our processes and IT systems so to make sure that the savings are sustainable and structural savings.

But the results, we decided to pull up some of the investments that we need to make to make the structural change. And, therefore, we have higher recurring savings at the backend. If you look at the restructuring cost of EUR800 million, then that is now EUR400 million, because as we said 40% of the savings are not people related, and we have to match some of one-time investments to realize this savings. I hope this answers to your question.

Gaël de-Bray – Société Générale

Yes. Okay, thank you very much.

Operator

Thank you, sir. Our next question comes from Olivier Esnou from Exane BNP Paribas. Please proceed with your question.

Olivier Esnou – Exane BNP Paribas

Hello, good morning. Thank you for taking my question. So first on Lighting, I would like to come back on the net negative effect you still have this quarter from the mismatch between prices and raw material. How much – can you tell us how much it is costing you in gross margin this quarter that should hopefully disappear in Q4? That’s my first question, please. I have a follow-up.

Ron Wirahadiraksa

Yes, we’re not really commenting on the actual development between those two. What I said earlier is we started with the price increases in the second half of the quarter. That means we had somewhat of a lag before the year-end. We hope to be at a run rate of price increases that offsets most of our material price increases.

Olivier Esnou – Exane BNP Paribas

Okay. So let me talk a bit about some of the issues that you said in Q2 where you are making i.e. Consumer Luminaires, which you said was on the right track and should improve even in a weak environment. Is that the case now? Do you see it’s the case? And for Lumiled, when do you think we will see the benefit of moving to 6-inch?

Frans van Houten

On Consumer Luminaires, I do believe we are on the right track. The supply chain performance has already improved and we see it with higher customer service levels. The customer service levels really at the root cause of losing some traction in the market. Now that this operational excellence starts to come back, we have gone back to our customers for reviewing the listings at various retail channels for luminaires, and this takes time. We expect that over 2012, gradually this improvement will become visible. Perhaps there is some disappointment in how fast we see the customers’ response to those improvements, but it doesn’t takeaway from the structural improvement trajectory that we are on, and I can again confirm that.

With regard to Lumileds, the under loading effect of the drop in volume related to the display customer, it cannot be compensated by the higher efficiencies of moving to 6-inch. And so we would need to see higher loading to really up to full benefit of that. And I expect the growth in the general illumination LEDs to continue to be strong. And we are talking about substantial growth in that area. And so it’s a matter of time that we compensate for the loss of the display category.

Olivier Esnou – Exane BNP Paribas

Okay. Maybe just a last point please, on Healthcare. I’ve heard well the growth in China was 6% in the quarter, which is slightly lower than what we’ve heard over the previous quarters from you and your peers; I think growth was generally trending 15%, 20%. Is that just a glitch or I mean how should we read that number, is that a general deceleration trend or just temporary slowdown?

Frans van Houten

It’s a little bit complicated construction that I think Ron you can explain.

Ron Wirahadiraksa

Yes. So in China, we saw a reduction in the order intake for our Neusoft joint venture. We’re undergoing some reorganization there. If you would exclude that and actually order intake in China grew by 11%.

Olivier Esnou – Exane BNP Paribas

Okay. So just temporarily then in your mind?

Ron Wirahadiraksa

Yes, once this reorganization takes. But this is the underlying growth, healthy double-digit growth.

Frans van Houten

Yes, I think it’s better to take the 11% as a proxy rather than the effect of this joint venture which is as it says, it’s a joint venture, not 100% our own business.

Olivier Esnou – Exane BNP Paribas

Okay, thank you very much.

Frans van Houten

You’re welcome.

Operator

Thank you. Our next question comes from Sjoerd Ummels from ING. Please go ahead with your question.

Sjoerd Ummels – ING

Good morning, gentlemen. Two questions from my side, please. The first one is on Healthcare. In your opening comments and also in the CEO quarterly report, Philips stated that it is currently monitoring the overall economic environment and the impact on the Healthcare business in the medium term. And I was wondering if you could share at this point in time some of your key observations, key findings, with respect to the sensitivity of Healthcare to an economic relapse and also to mature markets’ belt tightening.

Second question relates to Lighting. And my question would be whether you could update us on the succession planning of the CEO and CFO positions for the business? Thanks.

Frans van Houten

All right. Let’s start with Healthcare. We indeed flag that consciously as the Healthcare business is still predominantly a US and European market. Of course, the upcoming markets are growing rapidly and that’s very exciting for us. But let’s say the brunt of the business is still quite related to the US and Europe. The US, as Ron has explained in his comments, is going well, and we also foresee continued growth. I think it is especially Europe that we are worried about where as we have told you in Q3, we already see with all of Philips a decline. And this – it is very important that we end this Euro crisis impasse impact as it may affect the real economy more and more. So it is an uncertain situation where in terms of order intake, we do see some weakness. Of course, we are working very hard to compensate that through growth in other regions and there we have good traction.

With regard to Lighting, well I could say we are having a good fun in being the CEO and CFO in Lighting. And I think our hands-on approach in that sector is starting to payoff in terms of improving operational excellence, granular performance management, but also showing to the company that we are very committed to this business. Of course, at some point in time, this situation has to change. It doesn’t matter to me whether it takes a bit longer; we are currently working on the succession plan for the CEO. And for the CFO we actually have a good solution in the pipeline already.

Sjoerd Ummels – ING

Yes, cheers.

Operator

Thank you. Our next question comes from Klas Bergelind from RBS. Please go ahead with your question.

Daniel Cunliffe – RBS

Hi, it’s Daniel Cunliffe here. Two questions, one on Healthcare. Firstly, just really looking at the new equipment orders, I noticed that ex-North America at least went from minus four in Q4 to plus three. Can you just give us some color on that? It looks as though the growth markets have stepped out somewhat. But I’m really interested in trying to get what’s going on in Europe. I mean it also looks like Europe is starting to improve. But I just really wanted to a bit more color on sort of European equipment orders. That is the first question.

And then, secondly, – just coming back to TV, you did mention in the press release that you maybe also looking at alternatives. It’d be interesting if you could just share with us what those alternatives maybe at this stage? Thank you.

Frans van Houten

All right, Ron why don’t you take the Healthcare question?

Ron Wirahadiraksa

Yes. So as we said, currency comparable equipment order intake grew 5%. The order intake was led by solid performance in the US that was 36% up. And as we said, excluding this Neusoft joint venture reorg issue we had 11% in China. That means that Europe was down versus the third quarter of last year to the tune of, I believe, 10% to 11%.

Daniel Cunliffe – RBS

But in terms – I'm really looking for the delta and we can work out that it's down from the press release, but in terms of what the percent down was last quarter versus this quarter, just to try and get a sequential pattern?

Ron Wirahadiraksa

All Right, why don’t we look it up for you and then maybe we can –

Frans van Houten

All right, the team will work on it, Daniel. Let me talk about TV again. I think we covered it in the beginning when Ben and Simon talked – asked about it. I’m still working towards finalizing the joint venture and that is where our energy is focused. We did want to flag that we have a delay in all openness, but it doesn’t mean that we’re already on the path of having no expectation anymore that we can finish this deal. Actually we think we can. And, therefore, at this moment it’s not appropriate to start elucidating the alternatives yet.

Daniel Cunliffe – RBS

Okay. All right, well, thank you very much. We’ll – I’ll hear back from you on the Healthcare question.

Frans van Houten

Yes, sure. In the meantime we continue with other questions.

Daniel Cunliffe – RBS

Thanks.

Operator

Thank you. Our next question comes from Christel Monot from UBS. Please proceed with your question.

Christel Monot – UBS

Hi, good morning, gentlemen. It’s Christel here from UBS. Thank you for taking my questions. Just quickly to come back on Lighting and pricing, I think you commented or you gave us some ideas about the impact of higher phosphor prices. And you basically, I think you guided for something like a 25% to 30% price increase in CFLs and fluoro tubes, which in theory would be a 5% boost to the top line. So is this the kind of magnitude that we could expect for Q4? And do you think that's structurally sure and therefore you're going to have to either secure more your phosphor supplies or do we – will you have to increase prices of gaining Q1 next year. That would be my first question.

Frans van Houten

Okay. So the Lighting price increases are expected to have more impact in Q4. There was already some impact in Q3 that could have a little bit of a boosting effect. But let’s not forget that the categories that are most phosphor intensive are only a part of the overall product mix. It’s applicable primarily to TL and CFL light as our incandescent and HID lamps of course are not subject to that. Therefore – and when you look at modeling this, we should not forget that there is only a smaller proportion directly affected by these massive price increases that we talked about. In anticipation of price increases, we did see a few distributors stocking up on the old priced products and that could have a somewhat dampening effect on the uptick in the – especially the first few weeks of the quarter. So all-in-all I don’t think we should count on a big effect of price volume effect.

Now, then on the phosphor strategies, I think this is a global concern, whereby Philips has taken mitigating actions to secure phosphor in the long term through various supplier collaborations. And we also have the ability to manufacture in China where access to phosphor is easier as local companies in China are more – having more favorable access to.

And I see Ron reaching out; do you have the answer on the previous question or add to the other one?

Ron Wirahadiraksa

I want to come back on the point that we left open on the Q3 [ph] Europe order intake growth. There was in Q2 also a decline, it was about 6%. So QonQ we saw weakening from Q3 to Q2.

Frans van Houten

All right, and maybe back to Christel, maybe ask more questions.

Christel Monot – UBS

Hello.

Frans van Houten

Yes. Go ahead.

Christel Monot – UBS

Okay. Thank you so much guys. I switched [inaudible]. Just one additional question was on the cost of TV which I see in Consumer Lifestyle. I think you mentioned EUR7 million this quarter, while the guidance previously was more something like EUR15 million in the quarter. So what should we expect there? Is that that Q4 is going to be higher or that you have already managed to reduce the legacy cost from TV?

Ron Wirahadiraksa

There has been somewhat of an adjustment in the number. So at this moment the run rate is somewhat lower than remaining cost than we guided for earlier. I think you can take that forward.

Christel Monot – UBS

Okay, brilliant. May I have a very final question which is the EUR30 million impact. That’s going to be a very quick one. EUR38 million impact from – in GM&S I think which came from legal and environmental provision related to a discount rate change. What is – can you be a bit more specific on that and whether this is a one-off or something we should expect to happen again?

Frans van Houten

So this more to be seen as a one-off.

Ron Wirahadiraksa

So that was a very, very short answer.

Christel Monot – UBS

This is brilliant. Thank you guys.

Operator

Thank you. Our next question comes from Martin Prozesky from Sanford Bernstein. Please go ahead with your question.

Martin Prozesky – Sanford Bernstein

Good morning, gentlemen. I’ve got a broad question on Europe. I mean we’ve seen Europe pretty weak across the board, across most businesses; I think you just commented that Healthcare orders were trending down. Can you give us a sense in your both the 2013 targets as well as the base case for restructuring for the EUR800 million, what is your expectation for your European macro development and specifically for the various businesses? And if that doesn’t play out, how much room do you have to increase savings if it’s needed in Europe?

Frans van Houten

Yes, thank you. We did flag before that we feel confident about reaching our midterm 2013 targets and that we should not immediately be affected by slight fluctuations in GDP growth. So in other words also with a slightly lower GDP growth, we can still achieve our targets. Ron calls this is a situation of self help and I agree this is the way to describe. We have so many opportunities to improve and that is what we are going after.

Now having said that, of course if the world really deteriorates in a major way and the European crisis could trigger that, then that will be a different story. And in that context, it is also so important that the European leaders in the coming weekend come with more decisive actions to get us out of this impasse. So in other words we don’t need a strong Europe to make our targets. But if Europe triggers a world crisis, then it is a different dialog. Then, yes, I think obviously we have covered Martin, your question.

Martin Prozesky – Sanford Bernstein

Thanks. This is a follow-up on that in terms of the areas which you see most exposed on continuing Healthcare weakening order trends, I mean that’s quite concerning for the medium term given the weight of that business within the overall mix. Also Lighting – and on some of the Consumer businesses you’re over indexing to Europe, right? So are there areas where you’re seeing further weakening of this point, or do you say things are achievable if status quo remains?

Frans van Houten

I think we all have to adapt to our value proposition to the market if the market is weak. And in Lighting I can give you a good example. The energy prices are still expected to rise in the next years. We have talked to municipalities and highway operators that investing in LED efficient lighting is a great way to cut 60%, 70% of the energy bill, and the total cost of ownership. And we can tie it up with financing in several cases. And so we see good traction in the professional lighting and solutions market. And so as we see weakness in one area, we will shift our emphasis to where the opportunities are.

In Healthcare in a way, a similar pitch of course that we’re trying to convince hospital operators and healthcare system that technology can help bring productivity. So even though there is a crisis, people still need medical health and that won’t change. So I think it is a matter of trying to help bring productivity. Now that doesn’t mean that I’m not concerned about European crisis. Of course, I am. But I just want to flag that even in the crisis, there are opportunities, and I refuse to be let ourselves be talked into a hole just because there are these risks.

Martin Prozesky – Sanford Bernstein

Thank you. That’s very good. Just one final last question. On the EUR800 million target, you said that 60% will come from employment reduction, that’s 4,500 jobs. Just running through the numbers, it looks like that’s quite a high for FTE costs that assumes around 100,000 by my numbers. Is that because of lot of the restructuring is focused on management layers or am I missing something on that math?

Ron Wirahadiraksa

Yes. I don’t think you’re missing anything. As we said, this is pertaining to the overhead structure of the company and typically you would find somewhat more management in there, and that would explain why this is more weighted to the higher side of the spectrum.

Martin Prozesky – Sanford Bernstein

Okay, thank you.

Operator

Thank you. Our next question comes from Bill Mackie from Berenberg Bank. Please proceed with your question.

Bill Mackie – Berenberg Bank

Good morning. Thanks for the – taking the question. It’s William Mackie from Berenberg Bank. First of all, I just wanted to understand within the restructuring costs that you’ve outlined exactly what has changed. It seems that you have increased the allocation of expenses against the sectors by nearly 80% since the last time that you provided the projections for the costs and you have cut the expenses against the GMS by around 20%. So allocated GM&S expenses have now gone from 270 to 215, whereas sectors has gone up from a 105 to a 185, which seems a very significant change in your allocation of expense against the EUR800 million of savings. So could you perhaps elaborate on what changed so significantly and how that may impact the way in which savings are achieved going forward over the next three years or so.

Ron Wirahadiraksa

Yes, thanks for the question. So we strive to be as granular as possible. So we want to make sure that what we’re doing in GM&S as part of the functions is also allocated as for GSU, global service units, and cost allocations to the sectors, so we should find it back there. So it’s not so that the overhead reduction program is just a corporate-led program, it is deployed fully throughout the sectors. And therefore the cost that pertain to this will have to borne by the sectors.

Thank you for getting back on this point. I want to clarify a point we made earlier on the restructuring charges and this gives me a kind of an opportunity. So if you look at the EUR120 million that we have guided for restructuring and acquisition charges, that is actually including the restructuring for this overhead reduction which we put at EUR50 million and then you have the normal restructuring for in this field footprint rationalization and acquisition related cost, so that explains it. Andreas I think I owe you that point from earlier.

Okay. William any other questions?

Bill Mackie – Berenberg Bank

Well, coming back to inventories; the 1.4 percentage point increase against sales, you say that’s split between Healthcare and Consumer Lifestyle, could you break that down? And more specifically, perhaps indicate why you see it’s appropriate to raise year-on-year and quarter-on-quarter the inventory levels within Consumer Lifestyle against the backdrop of declining consumer indicators of confidence which you alluded to earlier in the call in North America and Europe. And then lastly on Healthcare, it’s more specific. Perhaps you could quantify the actual level of higher selling and R&D expenses you’re incurring which has impacted the margin and how that may trend for the rest of this year.

Ron Wirahadiraksa

So actually if you look at the – thanks for the question. If you look at by sector you see that Healthcare goes from 19.6% to 21.5%. And as I said earlier, that is widely due to the seasonality. But why is then 19.6%? And that’s because we have some quite a big quarter to make and so lining up more of the new products, which explains for us the increase in the WIP. Let me assure that we need to work further and we are very focused on reducing inventory that simply takes somewhat more time. In Lifestyle I would say it goes from 14.3% to 15.2%. That is not a very bigger jump I would say, but we have also lined up for the fourth quarter, because our growth businesses have quite – still have quite a good growth and we really want to be prepared for that.

Your point on caution in the fourth quarter, it’s well taken. This is basically the plans that we have based on current information. So good growth in the growth businesses in the Consumer Lifestyle and we just need to be prepared for that.

And we of course owe you and we’ve alluded to an inventory target at the Capital Markets Day. This requires really some bottom up and significant deployments throughout the company; we’re working on that as Frans said. We will come back to you on that in the next quarter. And there is a direct relationship with our end-to-end process, efforts under the Accelerate! program next to overhead reduction.

Frans van Houten

Right. If I could add, Ron and I don’t know what the target should be, but we want the target to be owned deep in the organization before we communicate it. All right. That’s it, William?

Bill Mackie – Berenberg Bank

There was the question on incremental spend at Healthcare.

Frans van Houten

Yes, this pertains to product – new product introductions that we have made; quite good orders we saw in otherwise a very compelling new product suite. Very pleased that this is going very successful and we’ve simply have to make a little bit more of the expenses that we – that we need to get its well into do and well deployed with our customer base lining up for success in the fourth quarter. Also somewhat more effort in our go-to-market feet on the street that are simply required to help drive this growth in Healthcare which was in the third quarter as you know a solid 7%.

Ron Wirahadiraksa

But investments in innovation and investments in feet on street are both fully in line with our commitment to step that up in the company as part of Accelerate! And then, of course, we have talked before around the step-up of the EUR200 million in order to accelerate profitable growth.

Bill Mackie – Berenberg Bank

Great. Thank you very much.

Frans van Houten

You’re welcome.

Operator

Thank you. Our next question come from Andrew Carter from RBC. Please proceed with your question.

Andrew Carter – RBC

Yes, good morning. Most of my questions have actually been asked, but I just wanted to just inquire more on that annual investments. And I think you just referred to it that there was already a EUR200 million that you had referred to. And now on slide 28, there is a EUR345 million. I was wondering whether the EUR345 million is an addition to or does it include our previously announced EUR200 million.

And then perhaps on answering that one, I recalled last quarter that you said that off that EUR200 million, I think you said half of the targeted investments were already coming through in the run rate. So if that is the case how does it fit with what you’re saying on slide 28?

And then just perhaps finally for a clarification, these annual investments, are they all going to be expensed, or is there any proportion of it is going to be capitalized?

Frans van Houten

All right, let me start. So the annual investments on page 28 are one-off investments to come to a structurally better infrastructure and overhead setup in Philips, and therefore are not recurring. The EUR200 million investments in innovation and customer phasing resources are a permanent step-up. However we said overtime they will normalize in terms of percentage of sales. We said that in the summer that about 50% was already in the run rate and then we said we will keep that percentage kind of flat for the remainder of the year, also given that there is only so much that an organization can absorb at the same time and of course we see the – a somewhat deteriorating economy, and therefore we don’t want to go overboard in stepping all at once, although it does remain on our wish list to in certain areas of the company continue to do further step-ups in innovation and market penetration.

Then your question on how we treat the investments, I’ll let that to be answered by Ron.

Ron Wirahadiraksa

Yes, the last part of these expenses is IT related. There will be a certain portion that we capitalize. But I would say at this moment that about 70% to 80% of the expenses will be – of the amount will be expenses.

Andrew Carter – RBC

Great, thank you.

Frans van Houten

Probably something that we will – as we go along we will come back on with further elucidations as the exact details of these investments are also discussed with our auditors and so on.

Operator

Our final question is a follow-up question from Gaël de-Bray from Société Générale. Please go ahead with your question.

Gaël de-Bray – Société Générale

Thank you. Actually there is a two-specific questions more on the accounting side. First of all looking at the Lighting business, the level of amortization in Q4 came down to just EUR24 million, while the quarterly run rate was closer to EUR40 million, EUR45 million in the preceding quarters. And so what would be the expected new quarterly run rate going forward for Lighting in terms of amortization, please?

And the second question relates to the calculations on the pensions. Given the recent moves in equity market and also in interest rates, what is your initial view on how pension liabilities and pension cost will trend next year? Thank you.

Ron Wirahadiraksa

Okay. Well, on the Lighting part, this is of course related to the impairment charge that we took. So the current run rate is the one that is more – the stable rate going forward.

Gaël de-Bray – Société Générale

Okay.

Ron Wirahadiraksa

Okay. And then on pension, as I said, we give an update. We do that annually on December 8; we'll do a call to fully update for you on that. Of course we’re very keenly assessing and reviewing the impact of the current financial situation on our pension plan. But I’d like to come back to you on that at a later stage.

Gaël de-Bray – Société Générale

Okay. Thank you.

Operator

Thank you, Mr. van Houten and Mr. Wirahadiraksa. There are no further questions. Please continue.

Frans van Houten

I think if there are no further questions, then we can conclude this conference call. I really appreciate everybody’s time and attention, and as before, look forward to our next session. So thank you very much and have a nice day.

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