Koninklijke Philips N.V. (AMS:PHIA)

AGM 2017

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May 11, 2017

Ladies and gentlemen, I think we're going to start. If you'd be so kind as to close the door. Ladies and gentlemen, let me open this meeting. Welcome, everybody. I'm going to introduce a few people to you. I'm going to first of all go behind me, Christine Poon, to start with. She's our Vice Chair. She's also Chair of the Quality & Regulatory Committee. Next to her is our CFO, Abhijit Bhattacharya. Frans van Houten, CEO. Marnix van Ginneken, who is CLO. That's legal officer. Herna Verhagen, who is head of the Remuneration Committee. Pieter Nota, business leader, Personal Health. Lincoln Paet, Supervisory Board Member. We've got the Supervisory Board behind us there. After David Paja, we have Jackson Tai, Chairman of the Audit Committee. There are a number of people whom you can't see who are in our Executive Team. You can't see them otherwise if they don't stand up. They will be here after the meeting, if you want to ask them questions, and they may answer questions during the meeting. Let me just introduce them to you. Ronald de Jong, to start with. Sophie Bechu. Rob Cascella. Henk de Jong. Carla Kriwet and Jeroen Tas. Then you will see two of these external auditors that we call Koen Bogaerts. Koen, please get up. There's Koen Bogaerts, one of the EY, and Ms. Halferbeek. In the room, I can see there are employees and former employees of Philips. Thank you very much for coming today. We're going to go through a number of presentation items. Then you will have sufficiently way to ask questions. I'm going to give the floor, to start with, to Frans, our CEO. He's going to be speaking English. If you need interpretation, please put your headphones on. Ladies and gentlemen, welcome to the annual general meeting of Royal Philips. Over the next 20 minutes, I would like to look back on 2016. Then look forward with confidence at our performance trajectory and future opportunities for Philips in health technology. You all know, 2016 was a defining year for our company, in which we celebrated our 125th anniversary as an innovation company. It was also the year in which we executed several major strategic initiatives as we transformed into a focused leader in health technology. The performance of the Philips Group as a whole, including Philips Lighting, also demonstrates that we have very good momentum. In 2016, our sales grew to EUR 24.5 billion, and net income more than doubled to EUR 1.5 billion. Our operating cash flow was very strong at EUR 1.9 billion. I already mentioned that 2016 was a defining year. We successfully listed Philips Lighting, and I'm proud that in its first year as a standalone company, Philips Lighting delivered strong LED sales growth and an increased profitability. As a consequence, the value of Philips Lighting has increased significantly since it was initially listed. This confirms that we chose the best path to unlock the value of Philips Lighting, and we are now capitalizing on that. Earlier this year, we gradually reduced our stake in Philips Lighting's issued share capital in two steps to approximately 41%. That's in line with our stated goal to fully sell down our stake over the coming years. We also secured a good future for Lumileds in a transaction that we expect to complete in the next weeks. In the meantime, we continue to emphatically build the new Philips as a leader in health technology. We acquired and integrated the digital pathology company PathXL and population health management leader Wellcentive last year. We also launched many new digital propositions at large trade shows such as HIMSS, IFA, and RSNA. Our strategic focus on health technology is working and delivering results. In that context, I'm pleased to report the 5% comparable sales growth of our health tech portfolio in 2016, and at the same time, we delivered 100 basis points improvement in the adjusted EBITDA margin to 11%. Let me now zoom in on the performance of each of our segments. Sales in our personal health businesses grew to EUR 7.1 billion, an increase of 7% on a comparable basis. That was driven by double-digit growth in health and wellness, mid-single digit growth in personal care, sleep and respiratory care, and domestic appliances. The adjusted EBITDA margin improved by 130 basis points to 15.6%. All around, that was a strong performance. Philips introduced a range of personalized health programs at last year's IFA trade show in Berlin, including the Philips Sonicare Connected toothbrush, the uGrow medical-grade baby app. Our connected DreamStation within our sleep and respiratory care portfolio delivers nightly relief and rest with assisted breathing for millions of sleep apnea patients. All these innovative propositions leverage the Philips HealthSuite, a secure, cloud-enabled connected health ecosystem for devices, apps, and digital tools and services. Meanwhile, sales in our diagnosis and treatment businesses amounted to EUR 6.7 billion in 2016, which was an increase of 4% on a comparable basis. That was driven by double-digit growth in image-guided therapy and low single-digit growth in the rest of imaging. The adjusted EBITDA margin improved by 150 basis points to 9.4%. In this cluster, we are leveraging our innovation leadership in diagnostic imaging. We launched the Philips IQon Spectral CT globally. IQon provides clinicians with a comprehensive diagnostic analysis in a single low X-ray dose examination. The market success of this new IQon is a direct result of the modality's superb image quality and disease assessment, and particularly suitable for cancer, oncology. In this segment, we successfully integrated our Volcano acquisition, achieving multiple quarters of double-digit growth as well as significant growth synergies with our image-guided therapy systems business. We also delivered cost synergies well beyond our original plans. Sales in our Connected Care & Health Informatics businesses rose to EUR 3.2 billion, an increase again of 4% on a comparable basis. This was driven by mid-single digit growth in patient care and monitoring solutions, and low single-digit growth in Health Informatics. The adjusted EBITDA margin improved by 60 basis points to 10.3%. In this segment, we are expanding Philips' global leadership in patient monitoring solutions beyond acute care settings. For example, we launched the latest version of our IntelliVue Guardian solution in Europe. This solution includes a set of smart wearable biosensors that you can put on your chest, for example, combined with big data-derived clinical decision support algorithms. The solution has been designed to aid clinicians in the early recognition of the patient's status or deterioration in, for example, the hospital's general ward. This enables more timely intervention, avoiding adverse events and unplanned transfers back to the ICU. You can all imagine that this is hugely important for both patients and hospitals. Switching to this year, last month, we announced our first quarter results for 2017. We had a solid start to the year, and we continued our growth with our HealthTech portfolio expanding on a 3% on a comparable basis, and adjusted EBITDA increased by another 80 basis points to 7.4%. The operating cash flow for the group, including Philips Lighting, improved to EUR 343 million. It was a very active quarter in which we again launched several breakthrough innovations, announced new strategic partnerships, and we won various integrated solution deals with customers. In the first quarter, we also informed the market about our discussions on a civil matter with the U.S. Department of Justice representing the FDA. As we previously reported, these discussions arose from past inspections by the FDA in and prior to 2015, primarily on the external defibrillator business in the U.S. At this moment, there's nothing new to report, but I would like to emphasize that it will not deter us from maintaining our performance momentum. Ladies and gentlemen, the transformation of Philips into a global leader in health technology is very much resonating and appreciated by customers and employees. It also has not gone unnoticed in the financial markets. Last year, the FTSE Group's ICB reclassified our stock to the healthcare industry, and more recently, also the STOXX Europe 600 index reclassified Philips to healthcare. Our share price is on the rise with significant room for future upsides. The evolution of our performance in the past five years shows that Philips is on the right path. I'm convinced that we will be able to continue to build on our momentum. Let me now provide you with some insights into the markets that we serve, and in particular, the strategy that we use to unlock more value for our shareholders. As the slide shows, our HealthTech portfolio targets attractive and growing market segments. Growth in this market is driven by multiple factors. We see globally aging populations resulting in ever-increasing number of chronic and lifestyle-related diseases. There are also a lot of need to give people more access to care at affordable cost, both in mature and emerging markets. We see many opportunities for technology to play a role in data-enabled healthcare delivery and productivity improvement. Our Personal Health businesses are enabling people to take care of their own health and deal with chronic diseases at home through connected products and services. Our diagnosis and treatment businesses, meanwhile, is all about helping doctors come to a first-time right diagnosis and performing minimally invasive operations. Clinical informatics play an increasingly important role in bringing together all the different sources of data around the patient in order to come to the best possible outcome for each individual patient, more integrated patient care, and of course, very importantly, higher productivity for the hospital. With our Connected Care & Health Informatics businesses, that's precisely what we do. We can now predict potentially adverse health events in the hospital or in the home, leveraging big data-derived algorithms, and supporting care teams to deliver effective telehealth services, thus helping to save lives. I'd like now to expand a bit further on the strategy going forward. At Philips, we specialize in systems and smart devices, software, and services to support consumers and care providers to make healthcare affordable and accessible across the globe. We operate from a position of strength, with over 60% of our products and services already enjoying leadership positions. To unlock the next phase of value creation, our HealthTech strategy leverages three focus areas of initiatives. Firstly, we create more value by improving margins, by better serving customers, and raising operational productivity. The ongoing productivity programs target approximately EUR 1.2 billion over the next three years. Our quality drive is making good progress, with customer satisfaction rising and much improved performance to drive the highest standards of compliance as part of our culture. At the same time, we acknowledge that there is much more work to be done to capture the full potential. Secondly, we create value in our core businesses by gaining market share through deeper and more comprehensive customer partnerships, to which I will speak in a minute. We also aim to increase geographic coverage, for example, in emerging markets. Thirdly, we create value by expanding our portfolio of innovative solutions along the health continuum through continuing R&D investments, co-creation with customers and partners, but also through selective acquisitions. Within this three-pronged strategy approach, I would like to highlight, as I mentioned, the opportunities for Philips to grow its revenue and margins by leveraging our deep clinical and consumer insights to deliver innovative healthcare solutions to our customers. The word solutions I underline. Solutions comprise advanced systems, smart devices, and software, and a broad range of services, including consultancy. That helps our customers in the best way. Our solution sales, as a consequence, are growing fast. In fact, growing at twice the rate of the overall Philips growth rate. The reason for that is that customers are increasingly looking for trusted partners, such as Philips, to help solve complex medical challenges in which technology plays a key role. Our success in building long-term strategic partnerships, such as, for example, the 15-year agreement that we now have in place with Banner Health in Arizona and the United States, is the ultimate example of delivering higher value to customers, while at the same time ensuring recurring revenues for Philips at accretive margins. With the help of Philips Intensive Ambulatory Care Program, Banner Health reduced hospitalizations for chronically ill patients by nearly 50%, reducing overall cost of care by more than one-third. You can see this is having an impact. We achieved a significant expansion of such partnerships in 2016, entering into 50 new multi-year contracts with an aggregate value of approximately EUR 900 million. All of this together, in summary, ladies and gentlemen, will further improve our underlying performance, continue to target 4%-6% comparable sales growth, and an improvement in adjusted EBITDA margin of about 100 basis points per year every year. Our outlook for 2017 remains unchanged. We expect further operational improvements and comparable sales growth in the year to be somewhat back-end loaded. Regarding our capital allocation policy, we will continue to target investments in organic growth, selective M&A, and returns to shareholders. In line with our confidence in Philips' future success, we propose to maintain dividend over 2016 at EUR 0.80 per share in cash or in shares, which is slightly above 50% of our continuing net income. Philips aims to be a responsive and responsible actor in the world. Last year, our products and services already improved the lives of 2.1 billion people around the world. In 2016, we launched the next version of our five-year Healthy people, Sustainable planet program, supporting our goal to improve the lives of 3 billion people per year by 2025. Our sustainability program reflects our commitment to the United Nations sustainable development goals, especially those that seek to ensure healthy lives and promote wellbeing for everybody at all ages, and to ensure sustainable consumption and production patterns. For example, Philips committed to becoming net carbon neutral with respect to our operations by 2020. In addition, by 2020, we aim to have 70% of our products meet green standards, and target that 15% of our revenue will embrace circular economy concepts. Already today, many of our products and services actually meet those goals. I would like to emphasize that by embedding sustainability in the way that Philips does business, we believe that we can contribute to our own value creation and meet the expectations of all our stakeholders. For example, in partnerships with local governments in Africa, Philips has launched several community life centers with the aim to strengthen the healthcare system at the primary level in the rural areas. This is a new locally developed business models that comprise an integrated solution to provide access to healthcare and, at the same time, enable social, educational, and commercial activities after dark and enhances safety and security in the community. I'm proud of the progress that we continue to make there. Ladies and gentlemen, let me conclude. Philips' performance trajectory as a focused health technology company gives us confidence for the future. I'm convinced that we are on the right path to deliver mid-single digit growth, achieve mid to high teens profitability driven by annual improvement of around 100 basis points, and mid to high teens return on invested capital over the next years. I would also like to take this opportunity to thank our customers for continuing to trust us as a vital provider of innovative products and solutions. I would like to thank our employees who drive customer value growth and profitability improvements every day, and at the same time, deliver on this vitally important transformation of the company on the strategic level. We know what we have to do. We are committed to execute effectively against our very clear plan. Thank you very much for your attendance and your attention. Well, Frans, thank you very much for a very enthusiastic presentation there. Could I just say a few points of housekeeping? The questions that are going to be put subsequently will be answered on the spot if possible. If we can't give the questions the careful and complete answer they deserve, we will come back later. This is a live webcast, this meeting. The proposal of under item number five has been withdrawn. I'll say a few words to that when we get there. Now we are moving through 2A to F. You're going to hear some more of these presentations. Do not fear. After that, you will have the opportunity to ask all the questions that you wish. I can be quite swift about reserve and the dividend policy. The proposal is to pay a dividend of EUR 0.80 per ordinary share in cash or in scrip. Frans has made a few comments about the dividend proposal during his presentation, and it is in line with the reservation item on the agenda, giving the floor to Heino von Prondzynski. He is the Chairman of the Remuneration Committee, and he will say some words here about the implementation of the remuneration policy in 2016. He's also going to say something about the future later on, but this is about 2016. In other words, the remuneration policy as has been implemented. Heino will be speaking in English. Over to you, sir. Give me the microphone. Microphone. Lisa Kurvela. It gives me the pleasure as the Chairman of the Remuneration Committee to report an overview of the implementation during 2016 of the remuneration policy for the Board of Management. Before discussing the implementation actions of the remuneration policy taken by the Supervisory Board in 2016, I would like to share with you the main elements of the policy, which remain unchanged from 2015. Slide one on the screen illustrates the compensation structure for the CEO and other members of Board of Management. Using base compensation as a reference point of 100%, the left side of the slide shows the following for the CEO and other Board of Management members respectively. The annual incentive target is 80% of base compensation for the CEO and 60% of base compensation for other Board of Management members, with the opportunity to earn double this amount for exceptional business and team performance. On the downside, there's no payout for performance below threshold levels. The long-term incentive grant value is 100% of base compensation for the CEO and 100% of base compensation for other Board of Management members. The eventual vesting of this grant is in accordance with the plan adopted in 2013, which is based on performance against TSR, which is total shareholder return, and EPS, which is earnings per share targets over a three-year period time. The range of vesting is from zero to 200% of the initial grant. In addition, the right side of the slide shows that our compensation packages, here illustrated for the CEO, support a pay-for-performance focus through our incentive levels, leading to 67% of the total package being at risk. To report on the compensation decisions made by the Supervisory Board in respect of the Board of Management in 2016. First, the remuneration policy provides for an annual review of the base compensation levels, and in April, we implemented the results of this review. Following this, the CEO received an increase of 2.6% and Mr. Nota received an increase of 4.4%. These increases are in line with the established policy to move salary levels closer to the benchmarked salary over a period of time. Second, the 2016 annual incentive plan design performance and payouts, 80% of the targets are based on achievement against EBITDA, comparable sales growth, and cash flow based on targets. The balance of 20% is based on achievement against team and individual targets. Actual annual incentive payouts for the Board of Management were above target in 2016, driven by above-target financial performance at the group level in EBITDA, comparable sales growth, and free cash flow. Average team target payouts were rated above target due to management execution of strategic milestones in 2016, including the successful separation of Philips Lighting and the significant operational improvements. This resulted in payouts for the CEO, CFO, and Mr. Nota of 112.4%, 83.1%, and 87.3% of base compensation, respectively, as shown on slide 2. Long-term incentives granted to Board of Management members were in line with the policy level described earlier. The vesting of the grants is fully dependent on the realization against the TSR and EPS performance targets over a three-year performance period. Finally, in early 2017, the committee approved the payout of 106.5% of target in respect of the 2014 performance share grant. This payout comprised of two components measured over a three-year performance period, TSR and adjusted EPS, each with 50% weighting. The TSR payout was 105.8%, reflecting Philips TSR ranking between the 10th and 11th peer groups company. The adjusted EPS figure of EUR 1.64 resulted in a payout of 107.1%. This concludes my report on the implementation in 2016 of the remuneration policy. Back to you, Jeroen. Yeah. [Foreign language] Dank je wel. Dank je, Heino. Sorry. Thank you very much, Heino. [Foreign language] The jaarrekening. Dus we nog steeds geen vragen. Now financial statements were audited by EY. EY, of course, we know that our external auditor. On behalf of EY, we've got Mr. Koen Bogaerts, who I introduced earlier. He's here in the room, and he's responsible for the audit. Mr. Bogaerts will give a short explanation about the audit carried out by them and the statements of EY in the annual report. If you have any questions to him, you should direct them to me first, then I could channel them possibly to him. Over to you, Mr. Bogaerts. Mr. Bogaerts says, "Thank you, Chair. Ladies and gentlemen, I'm very happy to have this opportunity to give some explanation about what we have done with respect to the financial statements of 2016 of Royal Philips in way. My name is Koen Bogaerts, and I am one of the responsible EY partners for the Philips audit. Now, the contents of the financial statements, of course, falls to the board of management and the Supervisory Board. What I do is an audit of the financial statement, I'll give you a few ideas about what we did. At the end, I'll be very happy to field any questions that you might have. Now, what do I want to tell you? First of all, a short introduction. What our main conclusions were, what our core items were that we looked at in 2016. I will make a few overall comments. Now, first of all, could I tell you a few things about our approach? Now, our audit relates to the group as a whole, the consolidated group as a whole, because there you can really see the risks attendant to the business that Philips conducts. These are the points that we focus, that we explicitly look at when we're auditing. We look at the internal control and audit system and the management systems that Philips have already put in place. For 2016, we've established our materiality at EUR 60 million. Any misstatements above or in excess of 3 million, we reported to the Supervisory Board. With respect to 2016, there were no uncorrected material control discrepancies, audit discrepancies, which had to be reported. If you look at the risk-based approach, the top-down way of looking at things, and the materiality side of things, we see what we are going to audit in the Netherlands and abroad. Here we use the international EY network. We've got a Dutch team, with that Dutch team, we visited subsidiaries abroad. We talk to people about the major developments, we talk to local management of course, and also to the local auditors and accountants. That means that at the end of the day, we can bear the final responsibility in the Netherlands. We also have a whole raft of experts. These are experts in IT, taxes, pension, valuation, and also reporting, IFRS. What are our major conclusions, the most important one? Well, first of all, on page 178, you can find our independent auditor's report. On 208, you can see our statement with respect to sustainability. At the end of that, we have audit approving 20F with respect to the American supervisory institutions, which relates to the financial reporting system. Both of these relate to, of course, Philips being listed in the American Stock Exchange. Over and above the financial statements, we also had a look at the sustainability to make sure that what is in the annual report complies with international guidelines. Looking at that, we feel it gives a true and fair view of the performance, with regards to sustainability. In that framework, we looked at the reliability of a number of performance indicators and the materiality matrix was used as set up by Philips, which you can see in the annual report. You might think about the number of lives improved, carbon footprint, and mean revenue in the total revenue turnover. We have checked this, we have seen that there are no material misstatements in that. We did that as our role of auditors. We also check all information in the annual report to make sure it's consistent with the financial statements. Moving on. Over and above that this was our first auditing year, our key points that we looked at here were seven in number. First of all, company separation, valuation of goodwill, valuation of deferred tax assets and liability for tax risks. Initial audit engagement. If you have a look at the annual report, pages 180, 181, you can see all of this listed in detail. You know company separation to start with. In 2016, the company established two separate entities, which were split up into health tech and lighting, and it was in 2016. To accomplish the separation, the assets and liabilities of lighting have been transferred to new legal identities or existing lighting legal entities and vice versa. You can see this in the reporting, in revised segment reporting. At the same time, we had a look at transaction costs, tax repercussions, et cetera. As part of our audit procedures, we discussed with project management to understand the separation process and its impact that the company separation would have on the Philips assets, liabilities, and equity. We had a look at contracts. We checked the appropriateness of supporting documentation, et cetera. That was the initial audit engagement. When you start off, you have to make sure that you have an appropriate approach. In October 2015, we came up with a comprehensive transition plan to ensure that the former auditors and us could work seamlessly. It related to, but was not limited to, obtaining an initial understanding of the company, its business, background information, strategy, business, IT landscape, financial reporting, and internal controls framework. Why do we look at all this? Well, all of that assists us in performing our risk assessment procedures. We assessed the opening balances and the selection and consistent application of accounting policies by discussing the audit with the predecessor auditor and reviewing the predecessor's auditor's file. We attended a number of meetings with the Audit Committee. In January 2016, we told them about what we were going to do. Excuse me, in April 2016, we told them what we were going to do. Now, our relationship with management, I have to say, is both open and critical. What is important here, and I think we should say this, is that management has responded very well giving follow up to our comments. Open and transparent relationship is what we have with the Audit Committee of the Supervisory Board. We report frequently, both orally and in writing. In conformity with the corporate governance rules, we meet with the Supervisory Board without the Board of Management, and we discuss with the chair of the Supervisory Board and the chair of the Audit Committee. Well, thank you very much. I'd like to thank you now for your confidence in our work. Well, that's it. I've come to the end, but I'm happy to answer any questions. If there are questions, I will hear that and give them to you. Right now, ladies and gentlemen, you can ask any question that you feel that you want to ask about item 2 on the agenda. We will move later on to votes. Please go to one of the microphones. Please say who you are when you take the microphone, introduce yourself. I can't see anybody getting up. Surely somebody wants to ask a question. Go ahead, sir. My name is Keyner from the VEB. I'm speaking on behalf of the association of shareholders. I'm speaking on behalf of people who own 220,000 Philips shares. I have a question. After I read your annual report, I was very enthusiastic about what you're doing. What we see is a graying population in the mature geographies, and it seems to me what you're doing is highly full of potential. My first question is, you can see that healthcare and everything related to that in the U.S. and EU has a lot of negative focus on with respect to costs. That means that in America above all, of course, in the EU as well, but in America, there's a lot of pressure on pharmaceutical companies to bring the cost of medicines down. My first question, to what extent does Philips have problems with that? That people are trying to apply pressure so that your machines, let's say, health machines, have to be sold at lower prices, devices. I think the margins are very, very different. When are they going to approach one another or converge? That is in lighting. Thirdly, the chair said, or the CEO, he said that this recurring business is very important, service contracts. I'm just wondering, in the new Philips, to what extent does recurring business have an impact? Is it 5% or 10% of turnover? How much could it grow to? Could it become 30%? Why is it important? Well, it's very important for investors because it gives much better predictability for the future for shareholders and cash flow and items like that. I've got a few other core points about governance now, short points about governance. About the supervisory board. In your own presentation, you say that there's a kind of self-assessment, how can you improve your functions? You said that the way communication's done could be possibly improved. I didn't quite understand what you meant there. To what extent is this about serious matters, how are you improving communication between different members of the supervisory board? I would like more explanation about this. Finally, about governance. I'm always surprised, not about how much people are paid, how high the remuneration is, there's very high variable remuneration, even though it's not top performance. Philips is doing well, if you look at total shareholder return over a long period of time, you see that Philips is doing okay, could do better. Rather average performer. I think why, after a basic remuneration, why all these other remunerations if performance is not so good? Also, I have a question for the auditor. Does the new auditor have a different approach than his predecessor? I ask you the same question I believe you had a few days ago. Are you happy with the change in auditor, which regulations oblige you to have? Do you think it's good? Do you think the new auditor has a fresh view on the state of play? We're not going to put all the questions together, it's a good idea to have a think about how we can put questions together. I would suggest thanks very much for your questions. They're very clear. Heino is going to have to get ready for that. The auditor is going to have to get ready, Mr. Spanjer will have his word. Thank you, Mr. Spanjer says, "Good to be here." Last year I had real problems getting the annual report, I was delighted to find it in your headquarters. I was with a company on Monday. I have to say, their supply of documents was one out of 10, and you are nine out of ten. Secondly, in a transitionary year that you got the Queen Wilhelmina Prize. I think, Mr. van Houten, that is a brilliant success. With the company separation during the year, it was a hard row to hoe, I do think that getting this decoration is very good for you. I'd also like to thank you for your presentation, I've got a few questions about that. You said very soon you're going to divest more. What are you going to divest? With the cash that you're going to get, I think you won't forget the shareholders maybe you might give a split preferred, so that we would also get something back from divestment other over and above just the dividend. Can I go to the annual report now? That's the name of the game here. There are some things that I don't understand. I don't think that will surprise you. You say you are innovative technological business, you had a recall, didn't you, in the U.S.? Why can't you ever get it together to get the recall sorted? It didn't just cost a few EUR, did it? Those companies who supplied components for the AED, can you possibly make them liable? The recall is surely undermining the good name of Philips. My second question about page seven. The sales of rose to EUR 17.4 billion comparable basis sales increased by 5%. I see 7% growth on a comparable basis. You talk about a 5% on a nominal basis, you talk about the Personal Health businesses. I don't see any difference. I find it very difficult to see and understand the difference between nominal basis and comparable basis. There's a 2% difference here in the Personal Health business sales. As I said, it's on page seven, first column, second paragraph. What's the definition? It can't be anywhere in the annual report. Otherwise, I would have stumbled over it, wouldn't I? Third paragraph, you see an increase of 3%. This is for D&T, a nominal business and a 4% growth on a comparable basis. Once again, this is D&T, Diagnosis & Treatment businesses. Well, really, I'm totally lost. I can't get my head around it. I do have a question for the auditor because you as a company have got a huge amount of big data. Did you give your auditor the mandate to audit your big data? Because after all, you are working in different countries which possibly are less cyber secure than over here. Maybe the hackers could crawl in through wormholes on those countries and could really undermine your company's results considerably. That was my first row of questions. Let's move into answering the questions. I'm going to give Frans a few questions, a remuneration to Heino, I'll ask the auditor to answer the two questions that he's been To fill those questions, I'll tell you whether I think it's good that we changed the auditor. Frans says, "Let me start with Mr. Keyner." The first question was about healthcare market, where costs are under pressure, and he's quite right to say that. I think in all societies that is the case, but it's most obvious, isn't it, in the U.S., where 18% of GDP is devoted to healthcare. In places such as China, that percentage is 7%. I think we're going to see an increase sales there. I think worldwide, we see the technological healthcare sector increasing. It was low to mid single digit increases. There's something else playing into this. If the healthcare market is under pressure, productivity needs to increase, doesn't it? I always say that the healthcare sector has to be industrialized. Now, that sounds a bit cold and hard, but the idea, you need to first-time right Diagnosis & Treatment. Technology is going to play a big role in this, Philips is investing heavily here with a combination of systems and software and AI and consultancy services. What we see right now is that when we set up partnerships with major clients where we can help them to increase productivity, our revenues increase rather than decrease. It's very important that we shouldn't compete on price competitive products, we should rather offer solution bundles. That's working out pretty well for us. I would say worldwide, price erosion, if I'm taking an average here in Personal Health, is negligible, and in the health systems is between 1% and 2%. I have to say that can easily be handled. Now, the second question was margins. Margin difference. In the capital markets day in London, we committed to improve our margins by 100 basis points a year. We can do that because we have absolute confidence in the potential of our businesses. There are shareholders who say that we are lagging some categories, such as diagnostic imaging, where major competitors are stealing a march because they're in the mid to the high teens. This is a self-help story. We're playing catch up here. I have to say that we have more investment in organic growth, research and development. Digital pathology, medical wearables, healthcare informatics, these are investments that we're doing because they're going to grow. They're going to grow, and bit by bit, they are going to generate new revenues and improve our profitability. To cut it short, if every year we increase by 100 basis points, then we will be in the mid to high teens over a few years. I don't believe it's going to stop there either. We are fully convinced of our chances here. Recurring revenue was the third question. Recurring revenue. Of course, recurring revenues are key. That's really what we like. We're trying to construct a business model where recurring revenues are a key component. That relates not only to personal health products. I'm thinking here of, for example, the toothbrush attachment for the Sonicare. I also think of the masks for our sleep and respiratory business, meshes for the razors and things like that. Recurring revenue is now about 10%. If you look at HealthSuite, Connected Care & Health Informatics and D&T, and there recurring revenue is about 35%. Averaged out, recurring revenues are about 25%, and we think that every year we can ramp that up bit by bit. We don't have a target specifically stated for that. The next question, I believe, was the chairman. The floor is yours, Ms. Spanjer. Are you going to answer the question, Mr. Spanjer, or not? Oh, yes. Mr. Spanjer was talking about the definition of nominal growth as compared to the comparable sales growth. That is presented on page 51 of the report. Of course, it has everything to do with exchange rate, and you can read it all there. I would like to refer to the report. Okay, I will move on. There was another question by Mr. Kane from the VEB, so the Association of Investors, about the remuneration of the Supervisory Board. I tried to look up what he actually meant, but I had to rely on my memory and what we discussed, and I could only quote three things. First, the communication information, which we received as members of the Supervisory Board regarding competitors and their behavior. There was a question about receiving the information earlier. You know, in the good old days, you received a very thick volume by regular mail two days before the meeting. Now we receive it via email, and we need to make sure that it is secure. At Philips, we receive lots of figures and graphs. It is fine, but sometimes it is easier if we get a summary of that. What you also referred to was the communication between the committees and the Supervisory Board. I believe the communication is excellent, really is. Right. I would like to go back to your question regarding the remuneration, and I will ask Heino to highlight that, because in essence, the variable performance, is it really well paid for? It was on TSR and on high payments, high compensation, and how could you argue that those payments are really well-established. First of all, those targets for TSR for the 2014 plan had been set in 2014. In 2014, we said that you need to be at least in the middle of the pack of 21 companies. Philips has achieved, as I said it in my report, the 11th position. They are exactly between 10 and 12. Just to disclose who number 10 and who number 12 is. Number 10 is GE, number 12 is Procter & Gamble. It is not a bad place to be in. The performance has been, after we have really very detailed, calculated it, rated with 105.8%, which with the target given to be at 100%, if you are in the middle of the pack at rank 11, is certainly then worth the payout that we now have also decided on. The second part of the long-term incentive is EPS. The EPS is even more impressing, because if we compare the last three years, Philips' EPS growth has been 8%, compared with all the other competitors being at 4% at average. Yeah. If I may. My point of Yes. Oh, yeah point of criticism was referring to exactly the first thing. If you're middle of the road, which means you're not terrible, but you're not great either, I would assume that a base salary is enough, unless this base salary is very low, which I do not agree with the last statement. The point is not whether you did the calculations right, because I know the system had been agreed upon by the AGM in the past. The question that was asked was more from moral perspective. Does it make sense at all to reward executives for long-term package if the performance in the long term for that part, the TSR, is middle of the road? That was just a question from that point of view, not if the calculation was done in a correct way. Okay, thank you. I take this as a comment. In the middle of the road, if it would have been number one, there would have been 200% payout on the TSR. Yeah. No. There's also no payout if you would be behind number 12. Yeah. I don't have any issue in rewarding executives in a very extreme or high way if performance is extraordinary. I do have an issue in keeping executives if they're number 21 or number 20. I think then you have an issue in the long run. I do have an issue as well in rewarding executives on top of a very high base salary for long-term performance if the long-term performance is middle of the road. May I just give one additional comment on the base pay, because you said if you already pay executives at a very high level, which I would not completely agree with, because we have done a benchmarking. Our management team is paid at the median level with comparable companies with a peer set that we just have set up and also with the previous peer set. We're not paying at the top, we're paying at the median level. Thank you. Okay. We have still Thank you, Heino. We have still some outstanding questions for Frans before I go to our external accountant. Yeah, Frans. There were two more questions from Mr. Spanjer. The first one was on the AEDs. The recall in the first quarter relates to a very exceptional situation in which the battery is not rightly inserted or the product is not yet ready for use. If the product is ready for use, it's a perfect product. Users are expected to check the readiness of the product before they start using it. This was something that in a very exceptional case can lead to confusion. We have done two things. We have clarified the instructions for use, and through a software upgrade, we help the user to be alert about the readiness of the product. Let's say this is a preventative measure. As such, the product is a great product. This was detected by our own quality management approach. That it then still costs money, that's regrettable. This is because in the medical world, you retain accountability for the status of the installed base, and that is how you need to take care of it. Can you design perfect products? That is definitely our target and aim, and I believe that we are improving all the time. In this case, it is a product that is designed many years ago. Yeah. Then we still have this installed base that we want to take good care of. Nederlands. Oh, sorry. [Foreign language] Yes. Thank you, Chair. You reminded me that I need to speak Dutch. The second question was regarding my presentation about the sell-down of the lighting division, and it said that Lumileds transaction is going to be closed quite soon. At least this is our expectation. Your question was regarding what will the shareholders get from that? We're focusing on the sale and not the division. The proceeds of Philips from this sale can be allocated, Philips can follow the capital allocation strategy it has. I would like to point out that between 2011 and 2016, we had EUR 3 billion in share buybacks, and we kept paying high dividends over the target range. Because of the transformation of our company, we're better known for the value of our lighting as a part of Royal Philips, the mid-tier investors keep buying. They are actively acquiring the shares, we know that there is some room for growth. All the existing shareholders can profit from that. I have a question to the auditors, you know, I have a follow-up question, but we'll take it later on. Mr. Bogaards, the floor is yours. Did you have a different approach to the And also the big data question. I cannot say that our approach was different from our predecessors, no. We focused on a number of issues, I think that the inspection approach at companies like Philips needs to be reviewed. We need to build it up, bottom-up and top-down. Sometimes you need to implement new inspection techniques. We got our different departments of our international organization also involved, I understand that the Chairman will highlight that as well. Our efforts were enormous. The efforts we applied for the transition and also Philips demonstrated during that transition. Shall I move on to the big data question, Chair? Yes, thank you. You were asking about cybercrime. This was the essence of the question and the preventive and the repressive measures. This is the responsibility of Philips. This is the primary responsible party. In our inspections, we found out that Philips does a lot in that area all over the world. Of course, it does remain a challenge for any company. Those were my answers to your questions. Chair? Yes. Chairman of the Audit Committee is very experienced. He's brilliant, I'm sure he's going to give a good answer to a question regarding the audit. About the change of our accountants from KPMG to EY. I should remind our shareholders that there was a Dutch regulatory requirement back in 2015 for companies to rotate their external auditors. We complied, as reported last year, management and the Audit Committee together undertook in 2015, a very rigorous selection process. Management and the Supervisory Board sought the approval of shareholders, which we obtained last year, we started the switch to EY this year in 2017. Chairman, to the specific question on the floor, we went from one professional and competent accounting firm to another professional and competent accounting firm. Within the regulatory and our good governance requirements, the outcome has been satisfactory. Thank you very much. We go now. First, Mr. Freek, then we'll go to you, madam. You've been waiting patiently, then I hope we can finish this agenda item. Good afternoon, Chair. I'm very happy with these results, I must say, I do see that you give very good explanation. Analysts all over the world are advising us to buy Philips shares and company. They're saying we need to buy Philips shares, that's what people do, that shows that you've done a good job. The net promoter score of the stakeholders is very high. The higher that score is, the higher impact of the shareholders is supposed to be. Allow me to elaborate. The number of jobs at Philips has risen. This is wonderful, you're one of the few companies in the top 10 of the AEX. A number of companies are reducing jobs, over 80,000 of IT people and technical personnel are brought from abroad. It would be an excellent idea to train people of that area ourselves, Philips is doing a lot. Children at high school should also be educated in that respect. We see that at Albert Heijn, this is a supermarket chain, presenting the space exploration issue and André Kuipers, the Dutch astronaut, as one of their ambassadors. We're going to R&D, the R&D costs are growing, this is excellent. Have lots of patents, 99% of those patents of Philips are not being used. We need to do something about that. Next, sustainability. We're in the top of everything, just like ING and Unilever. We're lagging behind Europe. How can Philips support the Netherlands in this area? Philips Innovation Awards is a fantastic initiative, then you come to the final round, nothing happens. Those companies and those entrepreneurs need to get their support because you can help people with rheumatic problems, you can introduce those heaters and practice what you preach, introduce those heaters. Healthy water is a very important topic here. If we look here at the showers, if we look at the UV lamps of Philips, they're omnipresent. If we optimize that, sell 10 million a year, then Philips can have an extra 1 billion EUR in sales. Looking at sustainability, we know that car use can be decreased, the bicycle in Amsterdam can be rented for 1 EUR per day, it can go as far as 20 kilometers. I agree with I'm almost done, Mr. Van der Veer. Electrical cars, and if we use that, we'll get there 15 minutes quicker, one EUR per hour. Driving such a small car will cost you EUR 0.01 per kilometer. This is something really important. It would be a beautiful opportunity if the VEB would have a look at that. Thank you so much. The chairman is saying, and then we'll go to the lady over there, and then we'll bundle the questions. Mr. Van Houten, all the other representatives, and of course, all employees of Philips that are present. My name is Denise Rijken, and I represent the VBDO, the Vereniging van Beleggers voor Duurzame Ontwikkeling, or in English, Dutch Association of Investors for Sustainable Development. We view it as our aim to be committed to a more sustainable capital market. With this aim in mind, we have selected a few questions also this year that we would like to point you to in order to ensure long-term preservation of capital and also in order to avoid further risks. My first question relates to the environmental dimension of sustainability. Another one relates to the social dimension. The first one concerns the circular economy, and Mr. Van Houten has already mentioned that Philips is indeed a pioneer in the field of implementing circular products and services. Over the past years, we have seen that you have not only conducted different pilots in different areas very successfully, but also that you have developed an entire circularity program for the business. As also the CEO mentioned, you have developed as part of this, an indicator on circularity, circular revenues, and you've set hard targets on this indicator. This relates to the output side, which is certainly very important. However, as we argue, the input side is as important in this regard. You do acknowledge with your circular procurement policies and the program that this is of importance, but yet we're still waiting for hard targets and thus also a hard indicator on this. The first question is, when can we expect such a procurement-related indicator that relates to the input side and would complement your output indicator? The second question regards the social dimension, as I was saying. Last year, you once more assessed your suppliers regarding their sustainability-related performance. There it came to forward that one of the major issues relates to wages and benefits. We know that because you are this transparent, so we would like to applaud that. On the other hand, we find this really worrisome because obviously that frustrates the livelihoods of these people that are affected by this, thus also a key aim of Philips to actually enable a healthy and prosperous lives for these people. Of course, that might also present a supply chain risk, possibly due to sudden interruptions. What we would like to know is, now that Philips is aware that this is an issue further down the supply chain, how are you planning to address this? Are there any more specific measures rather than asking those suppliers to indeed sign a paper where they declare that they are indeed paying their employees decently? Thank you. I think those are questions addressed to Frans. [Foreign language] Let ik beginnen met de vraag van de heer Frijda. I'll start with the question, Mr. Frijda, and of course, there will be some common. The ICT training and education is important, and that's what we're doing, and we do have some initiatives. Philips is always a part of those initiatives. R&D percentage has gone up indeed, I also referred to that in my presentation because we're investing in the organic growth. The ICT activities are very intensive regarding the organic growth. That's why those percentages have gone up, so the R&D costs. You were talking about the use of our patents. We do not use all of them actively ourselves. We are paying attention to that, and we need to make use of those patents, maybe through third parties, and we give them the possibility to use those patents. You know that we have considerable revenues through the use by third parties of those patents, and we're going to continue that in the future. You're complimenting us on our efforts regarding sustainability. Thank you so much. You were asking us what Philips is doing in order to help other companies in the Netherlands. We set up the growth coalition of Dutch companies. We'd like to highlight sustainability and this cooperation is blossoming, and we've set up training programs for associations of employers, which is to show them that they get an extra tool, a tool they can use to support their employees. Okay. The heaters and the UV lamps. We agree with you because those are wonderful examples of good initiatives. However, we cannot go and help all the startups who won Philips Innovation Award. We need to preserve the arm's length principle. We do applaud them, and this year, 300 starters participated in the Philips Award. You were talking about electric bicycles and electric cars. We'll start thinking about giving our employees access to this kind of transport. It's extremely important. Mr. Rijken, VBDO, thank you for the positive feedback we receive from you. You were talking about circular economy, then you started talking about input and output and comparing the two. We're trying to have a thorough look at the balance of the use of natural resources, and the balance of the capital. I'm not sure what you mean by natural capital protocol. I can try and imagine something. You're looking at the input-output balance and the role our company plays in that balance. We've been one of the pilot companies in the natural capital protocols. This market is not mature enough, we cannot use it as a part of the integrated reporting. In the coming years, we'll start moving in that direction, and in any case, we're going to refer to those indices. You're talking about procurement. This is the input side as you define it. Depending on the nature of the goods we procure, we will put our requirements to the supplier, and he needs to commit. Looking quite concretely of the CO2 parameters, we're going to be CO2 neutral by 2025, for example, through the way we procure electricity, and we've signed contract in both in Europe and the U.S. to have the so-called green energy generated by wind farms. Maybe as a part of a consortium, start building wind parks in the Netherlands has given some very good results. This is a very good example of the so-called hard targets. The last question you asked regarding the salaries. The salaries and the wages our suppliers pay to their employees. We call it the living wage model, and people who work for our suppliers should be able to sustain themselves from those salaries and wages. We have requested a certain transparency from our suppliers just to see how their employees are treated, and we also just to see how they fulfill the requirements. That's all I had to say about that, Mr. Rijken. I see a lady behind his from the VBDO. After that, after all these question I see here, I would like to bring this round of questions to the end, we'll have any other business you can ask those questions then there. Thank you very much. I am with French Partners, I am speaking on behalf of Menses Asset Management and Owl. My first question is about separation costs. Last year, you were talking about separation costs of the lighting division, the idea was going to cost EUR 200 million-EUR 300 million. You can see on page 50 of the annual report, you can see EUR 152 million are booked to separation costs the total separation costs, including the EUR 62 million booked by Philips Lighting. I think you've received our letter this year. We send it every year to companies in which we are vested. In that letter, climate change and activity of the Supervisory Board and Board of Management. First of all, like to compliment Philips on the ambitious climate targets as they set up, also the high level of assurance of these figures. We can see all this in the integrated annual report, compliments for that. The effectiveness of the Supervisory Board and BoM, there doesn't seem to be a competence matrix. Is Philips ready to come up with a competence matrix? That would be a good idea. KPN, Randstad, Ahold, and other companies do this. With respect to the separation of lighting, are there certain competencies which the Board of Management is looking for and that they feel are insufficiently represented in the Supervisory Board? Is there going to be an external assessment of the Supervisory Board? Why does the Supervisory Board not use an external sanity check from time to time? Is self-evaluation the way? Surely, it's good to have an external person looking at your performance. The third and last point is the Remuneration report. Remuneration report, excuse me. Can you give an overview per benchmark where the Board has hit target, been below target, or over target? Long-term compensation, the EPS definition has been adjusted, what will be the impact of that? Could you give a bridge between the EPS as it used to be defined and now as it's been amended so we can see the consequences of that? Another point in this regard is the TSR calculation. Philips calculates that from 31 December 2014 to 31 December 2016. Another question is, on this point, are you looking at yield and returns in the same currency, or do you look at local currency? If we look at page 75 we compare it to our own figures, we see there are major differences. We would come on the 15th place then, not on the 10th, 11th place, if we used constant currencies. In other words, this would lead to a zero score for management and no payout. That's a major difference, we would really like some explanations from you on that. We would hope that next year you will clearly set out how the definitions are and how they're calculated with respect to total shareholder return. Well, gosh, that's a whole washing list of questions, isn't it? I suggest the question about the separation costs are going to go to our CFO. The question, a major letter will go for Frans. I'll give all questions about remuneration to Heino, I will conclude with the different points about evaluating the Supervisory Board et al. Abhijit, you're up first. Fulger, hi, good afternoon. If I get your question correct, we had given a guidance of EUR two to EUR 300. We had given a guidance of the separation cost to be between EUR two million and EUR 300 million. We ended at EUR 183. That includes lighting, that is actually largely related to lighting. We were able to do little bit better than what was the external benchmarks that we had, and that's why you see it slightly lower. Does that answer your question? Very much so. I would like to compliment you, actually, on delivering on this target. Thank you. Thank you. Your second, The second point was about the climate letter. I couldn't find a question in your remark. You were very enthusiastic about that and the targets and the reporting. Yes, we're very enthusiastic, and I would just like to join all the other speakers who expressed their compliments. Heino, please. Mr. Vida, thank you very much for your questions. Let me start with the EPS bridge. We will consider providing you with such a bridge in the future. We don't have a detailed bridge considered right now. However, in the spirit of transparency, what I can share with you is that the cost associated with profit and loss impact of acquisitions and discontinued operations and the non-controlling interest related to Philips Lighting accounted for approximately 70% of the adjustments. Other items, Forex headwinds, bond redemptions accounted for approximately 30% of the adjustments. As said, we will consider providing you with a bridge in the future. On the TSR and the local currency or the normal, regular currency, the Supervisory Board has made a decision to use local currency as a basis for TSR comparison. They consider to be the most appropriate method to assess management performance against the peer group because most of our peer group members also have the currency calculation as we do. Market fluctuations are outside of the control of management. In addition, this practice is adopted by a large number of companies that use relative TSR metrics. As you might agree with is that using common currency instead of local currency could go either way. We have used this now for a few years, so both with positive and negative impact. From what we have seen actually. From what we have seen, in previous years, the differences were not that big, so that's why we didn't really notice it actually as such. I must say, most investors or analysts I've been talking to actually assume that these kind of calculations are based on common currency calculations. We would have made the same assumption. That's why we were a bit surprised to see this difference. Obviously, it's in line with the policy and you have that kind of discretion. On the other hand, we would like to make the point that actually as investors and the analysts and, or the investing public actually expects these calculations to be based on common currency. We would like actually to ask you, maybe for next time, to consider calculating these kind of returns in common currency. Thank you for your comment. Yeah. Have you finished? Yeah. Thank you. The question that you put about competence matrix for the Supervisory Board, what is that? Well, it's a matrix where you can show what each individual Supervisory Board member brings in, their background, CV, et cetera. Well, we've done that pretty much halfway. We've got a profile sketch. Next year, there's going to be something a bit more than that. We think that would be a natural moment to see whether we can go further, because we see the same trends as you're talking about there. When you talk about somebody outside the company giving an assessment, well, that's interesting, it's important, but the people who assist the Supervisory Board send a whole question list, not only for the Supervisory Board, but for each Committee. Each supervisory board member has at least once a year, a one-off discussion with me, which is very similar to what happens with all employees in the company. The question list is reviewed by the secretariat, and then there is a discussion about that, and we take certain points that we select, which are core points, and we publish that in the report. During that entire process, we also discuss amongst ourselves whether we need any more external evaluation. You must understand, everybody sitting around this table are supervisory board members elsewhere. We think it costs money, of course, because it does. We don't think that it adds anything to the evaluation process. There are a number of countries where sometimes we need an external assessor. Maybe when we get there, we'll do that. Up until now, we are absolutely convinced that our own process is adequate and we don't want to spend your money. A lady first and then somebody else last. "Thank you very much," says. "My name is Jones Parhas. I am an individual shareholder. I'd like to endorse other compliments for what Philips did last year. Well done, Philips. I should also like to raise the next point. On page 119, there's an overview given for income over the different divisions over a certain number of years. On the next page, you can see the countries where the revenue is made. What happens to the U.S.? You can see that the U.S. is the country making the largest contribution. To what extent is the currency, was it measured in dollars? What was the currency impact on that $7.7 billion for the U.S. in 2016? Good afternoon. The numbers mentioned on page 119 that you mentioned are all converted into EUR. Last year we had about a 10% impact on the currency through the year. That would be roughly a number you could take as the upside. That's why we always give the currency comparable sales, and therefore you eliminate the effect of currency, and you see the real growth in the business. Maar als je gaat kijken naar de verdeling over daar- If you look at the split between diagnosis and treatment and personal health, what's the split in the U.S.? Is it comparable? Is the split the same as, let's say, in China, in the Netherlands or elsewhere? How does it break down? It breaks down differently in different countries, in the larger geographies, like you mentioned, China and the U.S. and the Netherlands, the split is pretty much similar. There are not massive differences, although the U.S. is also I think overall, if you look at the globe, the share of health systems, so diagnosis and treatment and Connected Care & Health Informatics, is slightly higher than the rest of the world because our domestic appliances business for personal health is less present in the U.S. than it is in other geographies. Yes. [Foreign language] [Foreign language] You have the last shot. Thank you very much. Rainier, I'm Turaj Mon, my name is. I'm a patent holder and a shareholder. First of all, I also would like to compliment you. The figures look great, and a lot of people here have also picked that up. There is one exception, and I've got a rather detailed question for you. Last year, there was a lot of brouhaha when you launched OneBlade. Now, it is a great product, the OneBlade product, of course. It's a trimmer and shaver in one. How many are you producing a year of these? I believe, and I've got a pretty good idea how much you're producing, and I believe you could produce twice as much. Why do I say that? The target is, of course, for of the traditional big shaver and things like that and the other blades in the world. Everybody knows that there's a huge market for disposable razors and razors full stop. Is this on the board of management's radar? Are you going to really squeeze the juice out of the potential of the OneBlade? Right. Yes, we have a champion in OneBlade. Peter, over to you, Peter. Peter Nota says, "Yeah, sure. We've got a plan, a cunning plan. We started last year with OneBlade in four markets, France, that's Germany, Austria, Switzerland, North America, and the U.K. Those four markets. Great launch, very successful, exceeded expectations. Both how much we sold and the number of handles. Not only the device, but also the recurring revenue accessories. That's the meshes themselves. At this particular moment in time, we're moving into phase 2. We're going to roll this launch out to 16 new countries. I have to say, we've got a full head of steam up to roll this cutting edge product out worldwide." My question was, as time is right now, there's momentum on the way, but there are sharks out there. For those of you don't know about OneBlade is, ask Mr. Nota, he'll tell you all about it, or you can look at the internet. I close this part of the questions. You can always come back later on any other business. The notary public confirms that the legal and statutory requirements have all been met regarding the convocation to, the holding of, and the participation in the general meeting of the companies. This meeting has been lawfully convened. There are about EUR 108 million present here today. That's 58.6% of subscribed capital. Now I'll move on to the voting. Each item will be voted on separately. Get hold of your voting device. I ask the voting operator to turn the system on. Stick the chip card with the gold chip towards you into your device. You should then see your name coming up on the display, and then you will have the opportunity to choose how you want to cast your vote. Is everybody happy? If you haven't got your name appearing on the screen after you've put the card in it, put your hand up. It's all looking rather good. So far so good. You're going to vote. If you hit the 1 button, you are in favor, 2 you are against, and 3 you are abstaining. Let me also say that you're only going to get percentages on screen after voting, you get the full figures later. 2 weeks later, in fact, it will be published in the report. I see a hand going up over there. Somebody will get to you in a minute, sir, madam. Everybody ready? You can vote on item 2A, that's the adoption of the financial statement. 5 seconds. Off you go. I now close the voting. We'll have to wait, and then it'll come on screen. You can see what's happening now. You can see that this is approved. Let me move on to 2D. The proposal here is to adopt the dividend, which I mentioned in my introductory comments. 1 in favor, 2 against, 3 abstention. You've got it's EUR 0.80 per common share. Vote is now closed. Look at that. It does us 100%, everybody in favor. That doesn't often happen. I hope that hadn't been hacked. I hope that's not the hackers at work. The dividend proposal is approved. I now go on to E, proposal discharge the members of the Board of Management. Could you please turn on the vote? Five seconds here. Voting is closed. Discharge is granted to members of the Board of Management. The next point, this is 2F, proposal discharge the members of the Supervisory Board. Voting is open. Five seconds. Closed. Once again, approved. Let me now move on to item number three, remuneration of the Board of Management. There are two voting items which will be put to the vote separately. First of all is the proposal to amend the remuneration policy, after we voted on that, there will be the proposal to approve the revised long-term incentive plan. These are shares which will be given in the long term. I'd like to give Harlan the floor for an introduction. Harlan. The proposal to amend the remuneration policy. To provide some context, over the past few years, Philips has executed a major strategic initiative leading to the transformation of itself into a focused leader in health technology. As a result of this, as mentioned in last year's annual report, the Supervisory Board reviewed the remuneration policy to ensure that we remain competitive in the health technology market. A key component of this was to identify a new peer group for remuneration benchmarking purposes, which included support and advice from committees' external consultants. Based on this new peer group, proposed remuneration policy includes changes to the long-term incentive targets and flexibility to change the annual incentive target, but not earlier than 2018. All proposed changes to remuneration levels are performance-based, which only will be realized if challenging performance targets are achieved. Further, full implementation of the proposals will result in the Philips CEO still being positioned just below the median in the peer group. Other proposed changes include ex ante disclosure of the financial indicators used in the annual incentive plan, increased levels of mandatory share ownership, demonstrating our positive moves in disclosure and shareholder alignment. Second, the proposed revised long-term incentive plan. The main change from the current plan is a revised peer group composition for relative total shareholder return purposes, which comprises key 19 competitors in the health technology sector. It is worth noting that the plan retains the feature of granting performance shares to members of the Board of Management. In addition, the payout schedule has been modified slightly, such that the maximum payout will only apply if Philips is in the top 5 TSR-performing companies and not in the top 6 as in the current plan. For more information on these proposals, I refer you to the explanatory notes to the agenda. With that, back to you, Jeroen. Okay. Are there any questions or comments? I see Mr. Weeda. Are there any more? Let's have a look. [Foreign language] Ik doe het liefste denk ik in dit geval, moet ik even kijken hoe het loopt, alle vragen. I hope that I can bundle all the questions. This is the way I want to proceed now. Thank you very much, Chair. This is not really a question, but a brief statement. Before the meeting, I've talked a number of times concerning 3A and 3B with the chairman of the Remuneration Committee. Thank you very much for that. We see that as compared to the first proposal, a number of changes were made, but not enough. The CEO remuneration, the target, and the income of 14%, this is not really fair for other reasons. We know that the complexity of Philips is going down after the lighting division has been separated, we see that the targets are not challenging enough. We see that the result is based only on the external benchmarking, there is no reference made to the internal benchmarking, and the Monitoring Committee did make its recommendations. Can we go back? Can we go back one point back? What did you say there? Monitoring Committee. The Monitoring Committee. My last point is that we cannot really see how they are in line with The Compact for Responsive and Responsible Leadership, which was signed by the CEO. If the CEO would like to react to this comment, I would be only happy. Taking all the above into account, I would like to vote against this agenda item. Okay, thank you so much. Kei Nug. I would like to support the previous speaker. You would hope that Philips, being a smaller company now and being more focused, would be less complex, making the management of the company less complex. We see that you're now more specialized, the remuneration is not supposed to go up. I'm really astonished. What you also said in your introduction, the targets. We want to keep the top talent. We don't want them to run away. I'm just thinking out loud here, was a bit surprised that the remuneration went up. If we're looking at the top talent and the executives, if they are really trying to get away, maybe their work is becoming too boring because Philips is less complex. What's the reason for the remuneration to go up? We investors need to take into account the changes in the society. You know that the company needs to look broader and that there are other stakeholders than investors. We, as VEB, have to live with that. Have you taken into account the developments in the society? We are all in support for capitalism as VEB, because this is the core of what we do. We're trying to improve also the life of people at the bottom of our society. What are you doing to preserve the system? Because we are being criticized, and if people see that the remuneration is so excessive, we are being criticized also regarding the actual performance they're rewarded for. VEB really does not understand that we can talk about the long-term incentive if there is no performance which leverages that incentive. Of course, you can be the best of the peer group, but this is not the performance. It just shows you're average, you're not that bad, you can stay. But this is not the reason to claim the variable remuneration. If you were in the top 10%, that would have been a different situation altogether. Everything depends on who you compare yourselves to. The so-called peer group is, of course, relevant. Of course, you're quite right in comparing yourself to other companies within health industry and to your health technology market. But if we look at Ahold Delhaize, okay, they sell healthy food, right? Heineken, alcohol-free beer. ASML and everything, okay, they can be rooted in the same industry. Rolls-Royce, I do not understand that at all. They're dealing in engines. Then we have drug-selling companies and what have you. But this is not easily comparable to what we do here. These are the criticism points on the company. You know what? I'll bundle all the questions. My name is Frank Roos. I represent 20 institutional investors, and we have around EUR 4 million in shares. 80% of investors do not agree with these proposals, and they will vote against. Thank you. Mrs. Wijnjaard. Oh, Chair. Yes. We talked last Monday, and it was really a game. But in fact, now that game, jumping over each other and what you wrote, you can throw it away because I am not happy with what I see here. You do not tell them, actually, just make sure you get those targets and you achieve those targets. You do not give the figures. You are bringing in the peer group and Ahold and Heineken, but the matter is not clear at all. This remuneration, let's start and then see what happens a year down the road. The company has become smaller and, next year in your report, you'll give some other figures. People are saying that the salaries can be reduced. I am not happy, in other words. Oh, you've made that explicitly clear. This is the end of the questions. Herna, would you comment on that before we start voting? Thank you, Jeroen. Let me start with just one brief comment on the internal benchmarking, Mr. Weeda, which we have discussed already also in our meetings and our communications. We know that this is mandatory from the Corporate Governance Code, from the changed one then next year, and we certainly will be prepared also to then provide these data. It's a quite complex issue, so this is why we're not in a position to give you a more detailed view this year, but certainly then, when it's due, we will be prepared. Coming back to the proposing remuneration increases for CEO and Board of Management, and also this in light with what I have read from a couple of comments, the company reduced in size following the separation of the Lighting business. There are several reasons why we propose these changes. Following the separation from lighting and the company's focus on health tech sector and increasing complexity of the healthcare sector, we benchmarked our remuneration against companies in comparable businesses. Not in the old peer set, but with a new peer set, which we have set up with outside help with Towers Watson, who helped us to put up a new peer set. Plus those we compete in for executive talents. These consist predominantly from Dutch and other European peer companies, plus up to 25% of U.S.-based companies. The results indicated that our current remuneration levels for Board of Management and for the CEO are significant below the norms. Significant below median, even below the 25th percentile. We also conducted a comparison of our current remuneration levels to our current remuneration peer group, so to the old peer group. Also with this peer group, we also found that this is significant below the median. The size of the company does not lead to material difference in the benchmark outcomes as we compare the median of the peer group. Though Philips is one of the larger companies in the new peer group. To be exact, it's in the top third by revenue size. The last significant changes to remuneration policy were in 2005, and since then, competitive market for executive talent has increased significantly. These proposals go some way towards making sure that we can compete for new and retain existing executive talent. Although we have not lost sight of the Dutch AEX market with four companies included in the peer group, increasingly our competitors are located in the U.S., which have significantly higher total remuneration practices. The proposals put us at a severe disadvantage against our U.S. competitors' pay levels. Let's just have a side note that over the last two years, we have recruited four ExCo members who were either living or working in the U.S. We needed already to compete from compensation perspective with U.S. comparables. Over the past few years, and this now relates to the topic of decrease of complexity. Over the past few years, Philips has become fundamentally different company with a more attractive growth and profitability profile. In line with good market practice, the Supervisory Board has identified the new peer group for remuneration benchmarking purposes. That peer group is consistent out of 26 companies, and two-thirds out of these have smaller annual revenues than our business. On the LTI proposal and the increase on the LTI for the CEO and for Board of Management, we need to take into consideration that this is still to be earned. We still will need to define the targets, which then in three years from now, will hopefully lead to a payout. Those targets based now on a different peer set, which is more challenging and on even tougher targets now in that new environment of health tech where we are competing in, will certainly be a very high hurdle for management, for the CEO, and for Board of Management to achieve the targeted levels. I realize that this is a rather thorny issue. It is, of course, obvious that you want remuneration to have a certain kind of consensus underpinning it. We've taken a great deal of input, not only internal input, but also we got external consultants on board. They weren't all from America. We went to visit other interest groups, stakeholders. This is the proposal we came up with. I can understand it's a sensitive issue, I think the most important comments have been made from your side, where you've been questioning or expressing your doubts. You've heard what we think and what the most substantial considerations were on our side. I think we could talk about this until the cows come home, let's not. I think we should vote on the proposal. Let me start the voting. This is on 3A, the proposal to amend the remuneration policy, not the long-term incentive part. It's amending the remuneration policy. The voting is now open on item 3A. Another five seconds. Voting is closed. You can see that the proposal has been approved. We go to 3B. This is the proposal to approve the LTI, the long-term incentive. These are the shares that you're entitled to after so many years. Voting is now open on this item. Another five seconds. Voting closed. This is approved. I move to the next item on the agenda. I don't think we need to applaud that, sir. This is the composition of the Supervisory Board. Given this item of the agenda relates to my own reappointment, I'd like to give the floor to Ms. Poon, Vice Chair of the Supervisory Board, to temporarily take over the gavel. Christine, you've got the floor. Thank you, Mr. Chairman. As explained in your explanatory notes in the agenda, we propose to reappoint Mr. Van de Veer to the Supervisory Board. We support this reappointment in view of his broad management experience, his expertise in the financial and economic aspects of international businesses. Of course, the way he already fulfills his roles as Chairman of the Supervisory Board, Chairman of the Corporate Governance and Nomination & Selection Committee, a member of the Remuneration Committee. Ladies and gentlemen, do I have any comments? If not, can we take a vote? I believe the voting is open. Again, number 1 is for, number 2 is against, 3, abstain. Can you vote now? five more seconds. Voting is closed. Congratulations, Mr. Chairman. Done? I'm done. Back to you. We sort of crossing over now because we got to the proposal to reappoint Ms. Poon. We propose her inter alia on account of her position as Vice Chair of the Quality & Regulatory Committee and as a member of the Remuneration Committee and Corporate Governance and Nomination & Selection Committee. I'd also like to point out she's got considerable experience in healthcare and the pharmaceutical industry. We are really, really delighted that Mrs. Poon is available for reappointment. Any question? Let's vote. Voting is now closed. Congratulations. Congratulations. Well done. Approved. Well done, Christine, says Jeroen. We're moving on to item number five. You would've read I'm so overwhelmed by emotion, I have to have a glass of water here. My throat's just dry. This is about the remuneration of the Supervisory Board. We had a proposal, as I told you earlier, that proposal was withdrawn, and I'm going to explain why. The proposal was intended to bring the conversation more in line with that of the peer group we use for remuneration purposes, as we've shown in the agenda, where we discussed under item three of the agenda. We thought that this proposal was appropriate, after talking to and polling major shareholders, it transpired that more work had to be done on that proposal to come to a broad consensus. We're talking about the remuneration of the Supervisory Board, we didn't want to push this through, and thus, the Supervisory Board decided to withdraw the proposal. If you find the subtitle for that, you really only want to make a proposal about increasing the remuneration of the Supervisory Board if you're going to get everybody in favor. Because we didn't see that, everybody in favor, we withdrew the proposal. If you'd like to say anything on this point, please stand up. "Yes, my name is Kane from the VEB. It seems to me that with the reappointment, not only of you and Mrs. Poon, that a lot of people aren't in favor. VEB is in favor. I am not your enemy. It surprises me because generally speaking, unless there's some traumatic fate happening to the company, normally it's pretty much 100% in favor. For you, it's 24%, Jeroen. And Ms. Poon, about 18%. Have you got any flags about this? Clearly there is something. We don't know exactly what's going on, but maybe you know. There's some sort of disquiet here, because I think that is a more clearer substance than what you've just said. Well, I think the Chief Legal Officer followed this from the very beginning and was in contact with all the stakeholders. I think it's up to the Chief Legal Officer to make a comment. Yes, as the Chief Legal Officer, well, we discussed this item with a number of major shareholders and others, and it seems that the support for Supervisory Board with respect to remuneration was just not there. Now, whether that has got anything to do with the somewhat lower percentages for the reappointments that we've just seen, I don't know. Of course, obviously, people have been given instructions to vote in certain directions against the remunerations, for example, and possibly other shareholders were of the opinion that if there was instructions to vote against the remuneration proposal, then automatically, and I don't think that's always the case, there would be a kind of automatic trend to not vote in favor of the reappointment of the Supervisory Board. I don't know whether that's absolutely sure, but that might well be some explanation to why this percentage was somewhat lower than before. Let me now move on to item number six. This is the authorization of the Board of Management to issue shares or grant rights to acquire shares, and under 6B, to restrict or exclude the preemption rights. Now, ladies and gentlemen, this is a recurring annual authorization which lasts 18 months. We have to extend it every year. It's very much boilerplate. If you've got any questions, please ask them. Otherwise, let's vote on them directly. Can we start the voting then on 6A? 6A, this is the authorization of the Board of Management to issue shares or grant rights. Close. Yes. Well, we can see that that has been approved, 280, 5% for, 15 against. Let me go to 6B. That's the authorization of the Board of Management to restrict or exclude the preemption rights. Same. Very much standard item. Voting is open. Another five seconds to cast your vote. Vote closed. Approved. Item seven. Now, this is another standard item. This is a proposal to authorize the Board of Management to buy its own shares. Maximum of 10% of the issued shared capital, and you explained how it's done in the notes to the agenda. Please vote now on item number seven. Five seconds. The vote is now closed. 96% in favor, 4% against. Approved Item eight, cancellation of shares. This is a proposal to cancel common shares in the share capital of the company, held or to be acquired by the company. The number of shares that will be canceled shall be determined by the Board of Management. Any questions about share cancellation? Voting is now open on item eight. Another five seconds. Okay, closing the vote now. Almost 100% in favor. Agreed. This is delightful, of course. Now, we come to any other business. Any other business? Any other business. I'm just looking around to see how many people. I see Fran Haas. I think we should give the new faces a chance. My name is Marcel Vless. I've got a question. Have you been approached by other companies to work together with them? We take them together, these questions, says the chair, then we'll answer them. Two ladies at the back, the lady from the VBDO. Yes, sustainable investment group here. We're from the VBDO. Which concerns the sustainable development goals. Before I ask that, I would like to make the remark that I was a little bit disappointed when Mr. Van Houten didn't quite answer my second question on the wages and benefits. You simply made the assumption that I was referring to the payment of a living wage, while I didn't quite address that, but I addressed the issue of non-compliance that the Audit Committee of Philips itself has established. That was an indicator also set by yourselves, and we wanted to know how you are addressing this non-compliance. So far, just a remark. If you like, you can comment on that. Otherwise, I hope that you will address this in the year to come, this issue of non-compliance. The question regarding the sustainable development goals. Those are 17 goals which are aimed at securing a good future for our planet, people, and of course, also economic prosperity. Out of these 17 goals, you've chosen for two, which is Goal 3, health, and Goal 12, sustainable consumption and production. Let me ask a little bit in a sharp way. How have you assessed that those two are indeed the most important goals to address for Philips? They seem indeed quite natural for any company that is producing something and has a healthcare profile. We were wondering, have you evaluated this more thoroughly? Can we expect that possibly you're also dealing with an evaluation of the other 17 targets and possibly how those might be addressed under those targets 3 and 12 that you've chosen as priority for now? Thank you. I was struck by a picture in de Volkskrant of an elephant that had been crashed into by a train somewhere in the Indian subcontinent. Maybe the elephants weren't really aware of how much traffic was going to be going on the tracks there. From the Supervisory Board, there are people who are involved in the World Wildlife Fund. I should like to know, sometimes more is better. We've got a larger population living longer. That's probably good for business. Is that reconcilable, though, with the quality of life on our Earth, maintaining nature? Carbon footprints has got a big role to play here. Are you aware of the women's scientific platform that set up a summer camp, scientific camp for young ladies up to 17 years old? They have a lot of problems with that, their last sponsor is going to withdraw. Maybe Philips could take contact with this group in order to help people to participate in this because it's all about ICT. Furthermore, we are quite surprised that Philips is working with sleeping. Autistic children, they need products, too. Maybe that's something that Philips can also address. I believe the huge sales that can be directed there. We didn't quite get you. You see from one thing into autistic children. What did you mean by that? Says the lady, "Well, I'm a bit lost myself here." The thing is, kids who've got behavioral problems, very often autistic, and apparently, there are a huge amount of market for products to help these children have a more preferred sort of behavior and to better concentrate. Maybe Philips could get into that. Now, running around at the back, one of you two ladies at the back there. Thank you. My name is Fenna Politiek. I'm an individual shareholder, my linkage with Philips is that I'm the daughter of Jan Politiek, who back in the 1960s was making the washing machine a big thing in Amiens. Amiens is where Macron, Le Pen, confronted one another very recently. I'm also a scientific researcher, cognitive psychologist at Leiden University. The aim of Philips is clearly more than making washing machines these days, but also to promote people's happiness. You want to make people's life better. Millions of people's life better, indeed. This links onto what the last speaker said. We know what makes people happy. My introduction to my question here, it sounds a bit vague, but I have to say we're busy with this on a daily basis with neurocognitive research. We work on how the factors determine people feeling happy, well, et cetera. It appears that it's not only that we want to live long, we want to live better. What does better mean? Well, recently we found out that better living means that if they've got a chronic disease, compared to whether they've got a disease that they can get cured from. In other words, obviously, they're much happier if they can be cured. Business-wise, we see that the Dutch government is withdrawing bit by bit from fundamental research. In the U.S. and in Germany, we see many more individuals are financing philanthropically, scientific research. Would Philips not consider financing scientific research via funds, via associations, et cetera? The last question over here. It's Keyner from the VEB. I'm sorry, I couldn't see you, sir. Lights in my eyes. AXA, Unilever. You know what I'm going to ask here. Is Philips ready? If somebody comes with a hostile takeover, have Philips got a scenario to counter it and how you react? Because it seems to me that the way that Unilever and AXA reacted was really, there was a bit of panic. They were saying, "Well, we were going to sell that. We were going to do this." They freaked out, and that's really not what you expect from top management. You would imagine that a contingency scenario would already be there. My question to you, have you got a contingency scenario? How you would react to a possible hostile takeover approach? Secondly, a question which a lot of people would have thought about. Are you absolutely, in principle, against ever being taken over? Thank you, Mr. Keyner. The last question is coming now. Van Tousberg is my name. I work with APG, and I am also a shareholder in Philips. My question is, well, I've got a number of them, a slew of them. First of all, now that we've got a more focused company, the question is whether or not Philips might possibly have more concrete objectives about the future other than 4%-6% organic growth, 100 basis points margin improvement per year. I think if you look at the competitive and American peer group, they use many more concrete figures for midterm and long-term objectives. I'm missing that with Philips. My next point is something we've heard before, is that Philips has got a very considerable R&D budget for a number of business units, specifically with relation to healthcare. If we look at that, we see about 13% of related turnover is percentage of sales. 13% is about the highest of all of your competitors. It's higher than Siemens, seven basis points higher than GE, yet it hasn't led to a higher growth or higher margins. In other words, in the future, can we expect that Philips is going to make more out of the huge R&D expenditure and the kind of impact it has on margins and growth? On behalf of the shareholders and looking back on earlier points and BNP Paribas on long-term incentive plans, I would like to emphatically underscore that it is absolutely normal to express TSR in current currency, not in local currency. If you look back at 2014, EUR-USD was on 136. It was 105 a couple of years. That was 30% increase for EUR. Relative to the American competitors, you got 30% gain just tossed in your lap. I think this is very considerable. In the future, we would emphatically like to say that you should state TSR in common currency and absolutely not in local currency. Jeroen, the chair, concludes here. No more questions, all questions are for Frans, says Jeroen van der Veer. Unless he wants to give the elephants to somewhere else and remuneration. We've heard that more as a commentary, the other question goes to Ms. Van Ginneken, I will conclude this meeting. Frans, over to you. Thank you, Chair. Well, the first question about working with other companies. Well, we think that is very, very important. First of all, we are working very closely with hospitals. Above all, the hospital, the academic hospitals, the teaching hospitals. That links to scientific research and whether we support that. We do indeed, because we are making discoveries with a whole bunch of very smart people. Working with other companies. Look at the pharmaceutical industry. They, for example, have a real need to know that medicines work, drugs work on value-based care. They have troubles finding this out. We are the market leader in patient monitoring, we can really close the loop to see whether or not drugs work. Hospitals want to know this. We are also working with IT companies because we don't want to develop all our own IT. The Philips HealthSuite digital platform, for example, has been developed in conjunction with a number of stakeholders, including Amazon et al. The list of cooperations with other companies is long. I just wanted to give you a bit of a taste of it. VBDO, the sustainable development investors. We do indeed, because we are making discoveries with a whole bunch of very smart people. Working with other companies. Look at the pharmaceutical industry. They, for example, have a real need to know that medicines work, drugs work on value-based care. They have troubles finding this out. We are the market leader in patient monitoring, so we can really close the loop to see whether or not drugs work. Hospitals want to know this. We are also working with IT companies because we don't want to develop all our own IT. The HealthSuite digital platform, for example, has been developed in conjunction with a number of stakeholders, including Amazon et al. The list of cooperations with other companies is long. I just wanted to give you a bit of a taste of it. VBDO, the sustainable development investors. Let me conclude the living wage discussion there and the behavior of our contractors. We do contractor supplier audits, and if we find that the suppliers are non-compliant, we no longer take supplies from them. There's a real consequence. The suppliers have to pay very close attention not to make sure they comply with our norms. We discuss that and report on that internally, but not externally. With respect to the SDGs, those sustainable development goals, indeed, a lot of those, many of which could apply to Philips. You have to focus on the most important, and we have chosen for SDG 3, that is promoting the health and wellbeing of people, because that's the heart of our mission, and SDG 12, because that really is the carbon footprint determines our impact environmentally in the world and our impact on the climate and how we use resources. Are we a responsible company in the world in which we function? There are others. We can't just do everything. They're the most important for us. The next question. The example about the India. We can't sort the world out all by ourselves. We see that the world is increasing in population, but we are trying to make people healthier. I'm not going to say anything about whether there are too many people in the world or there aren't. I mean, that's not for me to say. As to sponsorship for female scientists. Education is important, but we can't sponsor everything. We've got a Philips Foundation, which we set up to look at CSR, and the Philips Foundation focuses specifically on health issues. Why? That's the core of our business. With regard to your question or your point that children with behavioral problems are a big market. I can tell you that you are right there, but psychologists are supporting people there, and drugs are also the other tool to mediate this. We do not see ourselves playing a role there. The lady on the right-hand side, my right-hand side. You know a lot about our history because you're going back to washing machines. That's back in the 1960s, isn't it? When Philips were making washing machines. The discussion about what makes people happy is difficult to measurement for 3 billion people. We think that it's health and wellbeing, and the light division that related to energy-saving lighting that fell within the Philips brand. You can see on page eighteen of the annual report, you can read about that. You also talk about government gradually withdrawing from fundamental research. We know and we see, and we try to shoulder our responsibility in that respect, but specifically looking at health. The question for Marnix, are we absolutely in principle against being taken over? It's not something that you delegate to your Chief Legal Officer, is it? We have a clear strategy. It's in the annual report, our takeover strategy or anti-takeover strategy is in our annual report. It's all based on improving organic growth, yield, and efficiency over the years. We are looking at acquisitions to extend our portfolio. We do believe that that is a really attractive proposition for shareholders. We often hear that from shareholders. The idea of Philips being taken over, I continue, it's not in our plan, organic growth and improvement story. The question about higher research costs. Let me first of all ask you to look at Philips as a whole of different components. Each of those components have to answer for their own percentage of R&D. If I look at Personal Health, we are the market leader. We are seen as the innovator, it's quite reasonable for us to be spending more on R&D than our direct competitors because it is coming to the bottom line. If we look at Diagnosis & Treatment, our R&D percentage there might be 150 basis points above what our competitors are spending, such as GE and Siemens. Why? That's got to do with how much we're involved in image-guided therapy and the catching up we've got to do in diagnostic imaging. Let me also say that in that respect, our scale is smaller than GE and Siemens here, and that's going to take time to make that right. The last category, which is the cluster involving CCHI, there you have to benchmark us with an IT company because that division is IT-driven. Software plays a very important role there. Over 60% of R&D in Philips is involved in software. What a factory is for hardware, R&D is for software. If you look at the market leaders in patient records, you can see they're spending about 15%-17% on sales on R&D. We're pretty close to that. We've got digital pathology, medical wearables. These are startups. There's no revenue basis yet. As soon as we get that revenue basis, you will see the R&D in those areas will drop. I don't think that we are over proportionally spending on R&D. After we divested lighting, audio, video, television, we are really keen to show that Royal Philips is the leading light in that area. Thank you, Frans. Thank you for answering all the questions. The last word to Marnix from Koninklijke. Are we well prepared for any kind of hostile takeover scenarios? The answer is yes. We keep our eyes peeled. We look at developments, we are well prepared. Says the chair, thank you very much for coming. Outside are a few bit of light refreshment for you all outside. Thank you very much for coming, get home safely. Baby, we don't need no reason. Baby, we're perfect strangers

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