Koninklijke Philips NV (PHG) 2015 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to our Q4 and Full Year 2015 Results Press Conference. As you can see I'm here with Chief Executive Officer, Frans van Houten; and Chief Financial Officer, Abhijit Bhattacharya.

And after a short presentation, there will be an opportunity to ask questions. If I may ask, just a bit of housekeeping, when you do ask questions, please state your name and the name of your organization. Thanks very much indeed.

And without further ado, I'll pass the floor onto Frans.

Great. Thanks, Ed. Well, in the next 10 minutes or so, I'd like to discuss our performance and devote some time on the opportunities that we see in two great and growing areas, of course, health technology and lighting solutions.

Let's start, however, first with the performance in the fourth quarter. It was another quarter in a row in a sequence in which Philips delivered year-on-year operational improvements, very much supported by our transformation program accelerated. We delivered improvements in the adjusted EBITA across all our sectors.

In healthcare, we saw a strong 15% order intake growth driven by North America, China and Western Europe. The adjusted EBITA margin increased by 100 basis points to 15.8% while comparable sales grew 3%.

I'd like to point out that our strategy and focus on multiyear partnerships with hospital systems continues to pay off as illustrated by three new partnerships based on the management -- managed services model, the ones, of course, that we recorded in the fourth quarter were Mackenzie Health in Canada, Granada's Clinical Hospital in Spain, and Hospices Civils de Lyon in France. And I may add in January, they announced another one which was -- which was Marion County, that you already know that.

And with regard to consumer lifestyle, it had another great quarter. Comparable sales growth of 6% was driven by double-digit growth at health and wellness, health and wellness, that's our toothbrushes and mother and childcare business, and a low-single-digit growth in personal care and domestic appliances. The Adjusted EBITA margin increased by 180 basis points to 17.8%.

Consumer lifestyle remains focused on realizing its great potential by offering locally relevant products while leveraging global scale. It's a good recipe.

For example, in the quarter, we saw India recording strong sales of various products such as the Philips AirFyer, juicers, soup makers and mixer grinders gaining traction with the Indian population.

Oral Care continued its strong global trajectory with very solid performance in North America, China, Germany, Austria, Switzerland, and I can go on.

Switching to lighting, lighting delivered performance improvements again, with adjusted EBITA margin increasing by 150 basis points to 10.5%. LED lighting comparable sales grew 26% and LED margins at the same time improved.

Now, LED sales now represent 48% of total lighting, and we discussed this in the analysts call. This also means that this year, we will go to a situation where LED lighting is the majority and no longer the minority and that will help the Philips lighting division to get to growth, which is a very important turning point after two years of decline.

Lighting showcased in the first quarter, again, its leadership in connected lighting by teaming up with companies such as Cisco and SAP to address opportunities in the office market and street lighting, respectively.

As we build out our LED business, we will continue to focus on improving overall lighting margins by also actively managing the conventional lighting market decline.

Overall, the Philips group delivered a strong fourth quarter despite a slow start, a solid year, we delivered consistent performance improvement despite the ongoing macroeconomic challenges such as foreign exchange and several economies going down.

Let's discuss the opportunities going forward in both health technology and lighting, starting with lighting. We see, of course, the growing population where people will need more light and the world definitely needs more energy efficient lighting and digital light.

Digital light such as the smart LED lighting systems that can adapt to the number of people in the street or in the office building, offering more than just illumination. All of this is driving a market that we think is set to grow 2% to 4% a year, but also a market that is moving to a sophisticated connected lighting systems and services, in other words, smart luminaires, all great opportunities for profitable growth and innovation allowing us to differentiate ourselves from commodity players in Asia.

I look at lighting actually as a company with two businesses. On the one hand, a strong conventional business, it has a very high cash generative profile because of industry leading cost structures and high market share and we are ahead of the competition in taking care of the industrial reduction.

On the other hand, we see a highly attractive fast-growing LED luminaires systems and services business. And here, we have the brand, the distribution leadership and the innovation leadership in smart solution structure, CityTouch and Hue.

I'm very optimistic about this business and I firmly believe that after the separation as we have laser sharp focus, lighting will be able to expand world leadership and potentially also use its own equity in order to expand.

I understand there will be questions about the separation process and we can talk about that in the Q&A, but let me stress now already that we have not yet made a decision on the route that we will take. We will continue to review all options for Philips lighting including both initial public offering and the private sale, and the process is fully on track.

With Philips becoming a standalone company, Royal Philips will fully focus on health technology, the health technology market that we refer to as HealthTech, a huge and growing market where we already have many leadership positions.

Our vision starts with this, health is not just a curative care opportunity in the hospital. In fact, that's where you fall sick and then you go to the hospital to get cured. In the future, it will be much more also about preventative care, keeping healthy people healthy and supporting people that have clinical medical conditions in the best possible way in their own setting.

This, of course, leverages our strengths in both consumer health and in professional healthcare and we have been active in these areas for a very long time. Please look at our personal health offerings in oral care, personal care, homecare and look at our professional healthcare solutions such as patient monitoring where we are market leader, diagnostics, minimally invasive treatments and health informatics.

And now, we are tying all of this together so that we can offer integrated solutions for improved outcomes and higher productivity. Last week, I was at Davos and whether you speak with ministers of health or insurance companies or large integrated delivery networks, they fundamentally embrace our vision of how health needs to be delivered in the future.

So we expect HealthTech to be a market with attractive growth rates driven by profound trends where Philips can support a market transformation with technology. We will support the shift from acute and episodic care to outcome or value-based healthcare aiming to coordinate care across all care settings, care providers over time. And we are convinced that this will increase access to quality care, improved outcomes, very much also reduce waste and therefore lowering cost. The referenced to reducing waste is why we very often talk about the industrialization of healthcare. Not everybody believe that's a popular term but, you know, first-time-right diagnosis, first-time-right treatment, getting people to go home fast, this is what industrialists know a lot about.

And we talked about the personalization of care whereby consumers are increasingly engaged in taking accountability for their own health journey, personalized health, personalized medicine, of course, enabled by sensor technology by the cloud with preventative care programs that are tailored to individuals and where care will shift from expensive hospital settings into the community and even into the home.

This will be driven by many stakeholders as I already referred to with my Davos remark and it's a great opportunity for Philips as we leverage a strong franchise both in consumer health and in professional healthcare.

So let me conclude, 2015, a year in which we made great progress on our transformation journey, 2016 where we expect modest comparable sales growth and we will build further on operational performance improvements, taking into account the ongoing macroeconomic headwinds and phasings of costs, and sales, we expect the sales and margin improvement in the year to be backend loaded overall.

There's another reason why 2016 will be a historic year for us. In 2016, we will actually celebrate 125 years of Philips. As you may know, I do not dwell on history for sentimental reasons but rather to take inspirations out of the success ingredients of the past. And then innovation and entrepreneurship is what made Philips great and it goes to elements that we embrace to make sure that also in the future, in a fast changing world, Philips is a powerhouse.

So I look forward to a new era with two companies both using the Philips brand name, both companies that will shape the future in respectively health technology and connected energy efficient lighting.

Thanks for listening to this introduction. Let's open the floor for Q&A.

Well done. Just grab it.

My name is Wouter van Noort from NRC. I'll start with -- I actually, I have three questions if that's all right. Is that okay?

Then I'll write them down.

The first one is about the Lumileds and automotive deal. Last time we spoke, you said that Philips is looking at acquisitions especially for the HealthTech part. Does the setback in Lumileds and automotive influence this process at all do you think?

The second question is about the competition because first, of course, congratulations for the good results, but the competition is also performing well, Siemens notably, and I am wondering how market shares are developing.

And the third one is related to a lot of talk in Davos about genetics and notably about CRISPR/Cas technology, genome editing technology, and I was wondering if Philips is already investing in this.

Okay. Obviously, Lumileds is a setback. We had a great deal, the deal cannot go through, now, we need to restart a process and look for other buyers, it will take time. We think that we should look towards the second half of 2016 for a deal on Lumileds. So it's another process of 6 to 12 months in that context. And it also means that proceeds will come in later, right?

We also -- also in questions this morning, we said, yes, the amount that may come in may be lower than the original amount. It remains to be seen depending on how the process runs. So obviously, that is a setback, but it is not a structural setback for our HealthTech strategy, right?

In HealthTech, we will consider acquisitions and the -- that the amount of Lumileds will not make a fundamental difference to the future of Philips in HealthTech. And, of course, we will also have proceeds coming in from separating lighting as an independent company.

We believe that, on your second question, that we have gained market share with 15% order intake in healthcare in the fourth quarter and 5% through the year thereby exceeding competition. I'm aware that the other company that you mentioned, Wouter, had a strong performance. Last week, our U.S. competitor published their results. We were definitely ahead of them. Market share numbers will come through in the next two months on the first quarter, but our belief is that we have regained market share and thereby recovered some of the issues that were caused in 2014.

And while I'm on the topic, we have also gained market share in the consumer health space both in health and well being as well as in personal care. And we believe that in lighting then market share has been more or less flat.

Davos, besides underpinning our strategy where people resonate with our strategy very much, we see the convergence of various diagnostics modalities, and you refer to it as definitive diagnosis where imaging and in vitro diagnostics or blood test pathology, so the science of looking at tissue samples as well as genetics will all come together to create a -- you can call it a 360-degree picture of a patient and their disease and thereby coming to first-time-right diagnosis. So genetics definitely will play a role in coming to the precise diagnosis.

Genetics may also play a role in the treatment, and certainly when you get to personalized medicine. But we are not in genetic manipulation, and I think that's what you were referring to. That is something that we will not go into. We may -- we will use the genetics information in the diagnostics process, not by doing the sequencing ourselves but rather doing the data analytics from all these sources of information in order to come to a reliable predictive diagnosis and treatment recommendation to the doctor.

That's it, I think, Wouter, I've covered all three. (Inaudible).

Hi. [Alfred Behringer] from Bloomberg. I heard you during the investor call talked a little bit about the consolidation in the U.S. I'm hoping you can give a little bit more insight to what that exactly is taking place but moreover what effects does it have on Philips, so does it eat away maybe the potential market because parties are consolidating so you have less of the market, I don't know.

And I was wondering about China. There was for a while a little bit of a clampdown on awarding new contracts. I think that market has opened up right now, but I'm still wondering if you could give a little bit more color on that particular segment.

The consolidation that I referred to in the analyst call has to do with the hospital consolidation. The United States has about 5,000 hospitals and mergers are taking place every week and it is the expectation that large hospital chains will emerge, are emerging, in fact. Maybe 300 integrated delivery networks will remain. So imagine hospital chains was 20, 30, 40 hospitals each that serve a community or a state and which will engage both in curative care as well as in preventative care because the Affordable Care Act from President Obama forces these IDNs into taking care of populations, and this is referred to as population health management.

In the future, re-endorsement will become a fixed amount per patient. And as that happens, hospital systems will have an incentive to do cost avoidance thereby reaching out to preventative care may actually avoid that you get more expensive treatment later on. And so the healthcare system is undergoing dramatic changes in United States.

Your question is what does that mean to Philips. Of course, when you have customers that consolidate, you first of all need to make sure that you keep your customers because consolidation may actually create winners and losers among suppliers.

Secondly, consolidating customers will have more procurement power and therefore may want to have more discounts. At the same time, larger customers create more efficiency for us, right, so it is easier to [sure] if a hospital with 30s hospitals than having to knock on the door of 30 individual hospitals so there is going to be efficiency there.

The larger hospital networks will also see that decision-making will lift to the so-called C-suite, to the chief procurement officer, to the chief executive and the chief technology officer of a hospital. This is good news because it will focus the hospital, a more integrated solutions rather than individual equipment, where in the past, a radiology would say, "I like this machine because it has this feature." In the future, it will be about, "Well, we choose Philips because they can help us with definitive diagnostics, first-time-right diagnosis and they are prepared to take accountability for the outcomes," right?

So you can see this whole transformation taking place. It's quite exciting. This is why we have our strategy for large scale partnerships and deals. We believe that we are the first to pioneer this different engagement model with large hospitals. There is increasing demand for it. People are overcoming their cold water fear to say, we need a different relationship with their suppliers.

And I think the future is in that sense ours to grab. We now have close to 50 of these large scale deals, and I think that's still scratching the surface because there are so many hospitals out there that still need to be tackled.

The consolidation does mean that near-term attention is going to restructuring of hospitals and I.T. investments rather than medical and clinical investments and therefore the medical equipment market is still slow in the United States. And that is for us expectedly a temporary matter. We are already gaining market share or regaining market share I should say. But going forward, we are more positive than negative about the U.S. market outlook.

Now, China, we have spoken last year many times about a couple of factors in China, first of all, slowing growth; secondly, clampdown on anti-corruption or anti-corruption measures which made hospital presidents very careful in their -- in their tendering process, and it has led to delays in new order -- orders being given out. And then the third trend was the emergence of local competition which is something that happens in every industry.

What we have seen in the fourth quarter is a nice recovery for Philips with strong double-digit order intake which is a -- I think underlining our strengths but also an indication that pent-up demand is now coming back because there is one thing very clear to me is that China doesn't have enough infrastructure to care for all the people in China, right. There is far too few hospitals, the waiting lines are enormous, sometimes people are queuing around the block of a hospital in any given day waiting for treatment diagnosis and treatment.

So investments will have to take place. It's just a matter of time. And even when more local competition happens, it's still going to be a very important market for Philips.

Good morning. It's Max Smolka of FAZ Newspaper in Germany. Good morning. I have two questions if I may. Is a package deal still possible selling lighting along with Lumileds with the Lumileds sale having fallen through.

No. We are not going to package Lumileds and lighting together. It will be separate processes, independent from each other.

Thank you. And secondly, Mr. van Houten, I remember you saying as of end of July, negotiations at the time about the lighting business haven't started yet because it was too early at the time. So what's the state of affairs now have negotiations about the private sale began yet?

We start with the process to explore interests of investors in Philips lighting late last year. We have received several statements of interests. We have exposed these parties with information on Philips lighting. We expect in the coming months to, let's say, narrow down this process of finding which parties are the right bidders and then eventually the private sale process is in parallel to an IPO preparation leading to -- we said enabling us basically late in the first half of 2016 to come to a conclusion if the value is right on which path is the most viable.

And which is the more likely?

That's what I said, we will judge that late in the first half, basically the second quarter. So it's too early to say.

Thank you.

On the last matter -- my name is [Hoko Shish] from [The Financial Telegraph]. On that last matter, is it possible that the decision will be delayed a bit more and a bit more than quarter two this year? And I'm asking this because the current IPO climate is not really well mainly because of the anxiety in China. And they agreed that this makes an IPO scenario less likely, well, from this point of view.

And then my second question is about the managed service model. You showed big ambitions and the performance is already quite strong, but mainly in radiology. And my question is, what's the next milestone field of expertise where you're looking at for this managed service models? Thank you.

Okay. You make various statements around the state of affairs in the market, right? And the assumption that the IPO market is not favorable, I find that too early to determine, right? The second quarter may look entirely different and therefore we should not jump to conclusions about the possibility or impossibility of an IPO. So for us, that option is certainly wide open. And similarly, the private sale process has shown good interest from various parties and therefore also that one shows good opportunity.

And I'd like to underline that we are on schedule with both tracks, but the fact that we are on schedule doesn't mean that we are forced to come to a conclusion, right? We believe lighting is a great company with a lot of good potential in the future and we want Philips to get the right value for lighting, right?

So we will judge not just between private sale and IPO, but we will also judge whether we get the right value for lighting and all of that will be taken into consideration in the second quarter and then we come to a conclusion.

Managed services.

Oh, yes, sorry, the managed services, apologies. And if I may, I will correct you because managed services is not just about radiology. We also have several examples of managed services deals in patient monitoring.

Patient monitors, you may think those are the little boxes at the bedside that measure patients, but actually, that's an understatement because it's a highly complex I.T. application with sensors at the bedside and cloud computing to interpret all the signals that come from the patients and there we do -- then do the alarm management very often or more than 30 or 40 parameters that we measure in real time in order to direct nurses and doctors for the right kind of care.

The complexity has led several customers already to say, "Philips, why don't you run this as a service rather than as a sale of hardware?" So we do managed services deals in radiology, in patient monitoring.

I think one of the future areas where we will see more and more managed services contract is also in the area of hospital to home, right? So we talked about the trends that care needs to be given to patients outside of the four walls of the hospital while hospitals have no experience in doing that, right, whereas we already have about a million patients under management in the United States through our lifeline services.

We have patients under [tailor] health surveillance. We support many patients in Japan for respiratory care services. And we believe that our consumer capabilities will enable us to actually build out that franchise, so that could be a third major area of managed services.

Yes?

My name is [Hera Drang] from [Volkroms]. I wonder, do you think the sale or IPO of lighting will be completed this first half year? And the second question is, can you indicate that you had some problems in Cleveland starting 2014. Can you indicate how much this problem has cost Philips in terms of sales and in terms of missed profits?

Abhijit, the second question I'm going to give to you.

Yes.

The first question, I think we just talked about it. We're on schedule so we could, let's say, complete transactional lighting in the first half, but I've just emphasized that we will also judge the value that we can realize either in an IPO or in a private sale. And therefore, we may not have to sell 100% in one go. We may opt to say -- to stay a shareholder in lighting for a longer term, right? It's all about the value realization and making sure that lighting lands in a good space and has a great future and so there are several parameters that we will take into account when judging whether it's a private sale or an IPO and whether it's 100% or partial.

[So the market] -- the shares will be sold this first half year.

I've given a little color on this and I basically said we'll take a comprehensive review in the second quarter on all these options. It is our intent to come through a transaction but we are not forced sellers, right? In other words, there is no gun on my head to complete a deal no matter what.

Then on Cleveland, you know we had the voluntary shut down in 2014. As a result of that, there are a couple of elements, one was we had, of course, to stop taking orders for a period of time that caused lost sales. We had to invest significantly in the remediation process, so that has cost us a lot of money. And the third is because we were delayed or we had to cancel some orders, we had to also take the negative impact of penalties.

So I think overall, it would be north of the 200 million that it cost us, Cleveland in total. And the plan is that over the next year, this year and next year and maybe the first part of 2017 that we recover most of that.

[Also] can you share with us, I've got two questions. In the investor call, you showed a slide where there's a new organization structure for HealthTech, and maybe you can give me some more information about the reasons why you changed something there.

And still one question about Lumileds, the news last Friday. What's the possible negative position of CFIUS part of the risk analysis you made, so when you made a deal with GO Capital. And how serious was the risk of a negative position CFIUS judged them when you -- when you made the deal?

Yes. First on the organization structure on HealthTech, in fact, we've talked in the financial analysts more about the reporting, the slight talks about the reporting, but, of course, there is a correlation to the organization structure. As we see deem it beneficial that the reporting is in alignment with the structure that we are organized.

Now, what is that structure, we have three segments or clusters of businesses in Philips that address the HealthTech opportunity. The first cluster is around personal health and there we see product for healthy living, for preventative care and for homecare. The second cluster is for diagnosis and treatment, and there, we find back most of the imaging businesses. And then thirdly is the cluster around connected care and health informatics. There, we have grouped most of our software businesses, but also patient monitoring which in the earlier question I already said has a lot to do with software, and also our consulting business that helps with the healthcare transformatory -- transformation.

And so that structure is now going to be the way we run the company in the future apart from lighting and the three leaders are, Pieter Nota, Rob Cascella and Jeroen Tas. Jeroen Tas is a recent appointment to take such a cluster whereas Rob Cascella and Pieter Nota have already been in place longer. So that basically rounds off that part.

The one remaining appointment that I intend to make is the replacement of Jim Andrew as Chief Innovation and Strategy Officer, but that's still to come.

Then on your second question, [Yob], of course, we have done a risk assessment in -- back in the first quarter of last year before we made a deal with GO Scale on Lumileds. We run a very careful process, we always do.

We did look at CFIUS, that's a regulatory approval by several countries. The U.S. is not the only country that needed to give regulatory approval. And we have concluded at that time that since we make very simple LEDs for commercial applications that there was no risk. And LED costs cents, a couple of cents. It goes into lamps, it goes into mobile phones and it goes into cars. That's all we do. The technology base sits in California in San Jose. It's our understanding that that process know-how is readily available in Japan, Korea, Taiwan, China, Germany and more countries.

So we deemed it to be ubiquitous technology that in fact is more than 20, 30 years old. So I think I spelled out how I look at it. And, of course, also it correlates with the depths of the disappointments that the U.S. government saw something else that we didn't see.

(Inaudible). I read this morning in the press release that the comparable sales in healthcare was declined by 3% in the fourth quarter. Can you tell -- give us some color on that?

That is a question for Abhijit.

No, in fact, it went up, so overall, for HealthTech, so both consumer and lighting, it was up -- sorry, consumer and healthcare, it was up 4%. In that where consumer lifestyle was up 6% and healthcare up 3%, so.

Well, I read some that then in United Kingdom, France and Germany, it was declined by 3% in the fourth quarter.

Okay . So in specific --

Western Europe.

Yes. So in Western Europe, it was a bit lower, but we've also seen, let's say, a strong rebound in our order book. So the order intake in Western Europe has been very, very strong in Q4, so well into double-digit.

So yes, sales sometimes is a bit lumpy, but overall for the year, I think we have gained share also in Western Europe.

There's no significant explanation for this decline?

No, no, not something that should be specifically attributed to it.

Thanks.

Wouter van Noort again NRC. I understand that you're not going to disclose what kind of deal you're looking at before it's done especially not to a bunch of journalists here. But especially in the HealthTech area, maybe you could give us a hint in what direction you're looking, is it more into the hospital technology like the Volcano acquisition or is it more in the consumer and out of hospital end of the continuum?

All three -- all of those areas are candidates for further expansion. But obviously, it needs to have a strong health connection. So we will not add non-health related consumer products to the portfolio, but both personal health as well as diagnostics, treatments and what we called as connected care and health informatics area, they are all on the radar screen. And we will hopefully later this year be able to tell a bit more about it.

What's the timeline approximately do you think?

Well, if and when we come to a potential target then that will be the moment to talk about it.

Yes, I have two questions, one concerning Texas, you have to pay a lot more in tax and so partly because profits are higher and partly because of your -- you lost some favorable tax relations -- regulations to R&D investments, I wonder what it is.

The second thing is you have to spend EUR200 million or EUR300 million more on the separation process. Where does that money go to?

Okay, thank you.

Yes. So we have announced -- let me take the separation question first and the tax second. We had all said that we would spend between EUR200 million to EUR300 million this year and next year to separate the two companies.

It's a big chunk of money. We have ended at the lower end this year, so around the EUR180 million, EUR190 million. There are a couple of big buckets, one is, of course, the whole separation of the I.T. infrastructure that caused a fair chunk of that money.

Apart from that, there is the whole local -- this is a complex project, right, this is a 1,000 legal entities across 85 countries in the world which all need to be split into two companies that start functioning five or six days from now.

So the entire process, the regulatory approvals in all these countries, the whole realignment of the supply chain, so that when invoices are made on the 1st of February from lighting that they have the necessary approvals and all that to flow through. These are, let's say, the big items.

There are, of course, costs that we have incurred on preparing for the deal itself, that is to come more in 2016 that's why we have the EUR200 million to EUR300 million bucket for this year. So the transaction cost itself will also come this year when we do that.

So these are quite -- let's say, the overall benchmark, we are at the lower end now, so we've compared when we made our original plan in terms of how much a separation like this would cost. The bandwidth was EUR500 million to EUR600 million. That includes a certain amount for restructuring as well. And we expect to be at the lower end, so far the way we have gone.

On the tax figure, there is one other thing you have to pay when you make a little bit of extra money, but there are a few of the other stuff that comes in the way which is -- there are provisions which you take or deductibles which go down from your P&L, but are not tax deductible at the time that you make the provision but at a later time. So it's a timing difference and that causes it. In a few countries, the tax rates have come down. Now, when the tax rate comes down, you expect the tax amount to come down, but if you have deferred tax losses or tax losses incurred in the earlier years, those amounts come down as well. And that unfortunately reflects in the short term as a higher tax that you have to pay. So that is -- but overall, our effective tax rate we still maintain will be in the range of the low 30s.

Low what?

Low 30s, so just above the 30%.

Considerable higher than some other companies that are sometimes in the news.

For not the right reasons, but.

(Inaudible - microphone inaccessible).

No, let's not go there, but I mean Philips pays its taxes and I think the first quarter was a bit of an outlier due to all the technical reasons that Abhijit described. But we pay a sizable percentage of tax and I should not have made the sneer towards. So let's not go there.

Philips is a good corporate citizen when it comes to paying tax and I know this is a topic that is close to heart of many journalists. We just wanted to underline that we do.

Hi, good afternoon. My name is [Kato] from Nikkei. And I have three questions, if I may. Firstly, Toshiba already announced that they would sell healthcare division, so do you have interest in buying share of Toshiba healthcare division? I understand that Philips and Toshiba both have [rushed] market share in emerging business, so it's difficult to answer, but so if -- could you give me some comments if any -- a newcomer coming -- rushing to this market, how it happened in healthcare business?

So secondary, as you mentioned, Lumileds are -- Lumileds are selling plan was banned. Yes, you gave up Lumileds selling plan. And last year, the U.S. authority prevented Electrolux buying the G.E. consumer electricity division. So do you think the U.S. authority behavior or the U.S. authority's ideas have changed recently?

The third one is regarding IoT or our I.T. business. Many manufacturers -- many big manufacturers are focusing on I.T. business or software business. So are you [sized] for current expertise or human resources in terms of I.T. engineer inside Philips or are you considering acquiring a software company that's based in Silicon Valley or something like that? That's all, thank you.

I'm aware that Toshiba has announced their intention to sell their healthcare division. I don't know exactly who is going to look at it. Your question whether a newcomer may upset the competitive field, yes, it may. I don't know who Toshiba will sell its division to. So depending on who is the buyer that may cause a disruption in the market, so we'll see.

On Lumileds, I don't think there is any relationship to the Electrolux deal because Electrolux was not stopped by CFIUS but was stopped by the DOJ, the Department of Justice, because of basically competition rules was in the United States.

So the way I've understood it was that DOJ saw that there would not be enough competition left in the U.S. if Electrolux would acquire G.E. Devices. And that opened up then the opportunity for, [what was it], higher to acquire Electrolux. So I think it is totally unrelated, it has nothing to do with it.

And then on IoT, yes, this is highly relevant to Philips both in lighting and in HealthTech. I want to point in lighting to our Hue lamps, right, these are highly successful. We've sold millions of these lamps already. They're all tunable with your phone. They can be programmed through IFTTT, If This Then That protocol on the cloud. And all these lamps are connected to the Philips cloud server.

Similarly in healthcare, remote sensor technology connected to HealthSuite, our cloud platform for healthcare delivery, we have already -- many customers connected. We are migrating our lifeline customers, so that's already a million, this will grow rapidly.

And then on the consumer side, I'd like to point out that our connected toothbrush for kids, Sonicare For Kids, connects to a Smartphone and then use gamification technology to coach a child to brush well. Long enough, but also careful enough and then the parents can actually check it because they get a message whether their child did brush well. So big brother is involved in overlooking your child's brushing behavior.

So in all businesses that we have, IoT is highly relevant and software becomes the differentiating factor that is important. So when you look at our R&D community, we already have 1,000s of software engineers in our community and we are constantly expanding the capabilities and capacity in software. It's very important, so it's a very good question.

We do this in several R&D centers in the world. Of course, here in the Netherlands, in Eindhoven in Best, but also in Silicon Valley in California, in Cambridge in Massachusetts, in Bangalore in India which are some of our successful software centers, and we will continue to be on the lookout to strengthen this topic, so indeed a highly relevant question.

One final question, anybody? If not then --

Yes, thank you very much.

All right. Thanks very much for attending and we hope to see you soon at the various events that are going on. Arab Health in Emirates is going on right now. We expect to acquire some attention there.

Another event that is coming up is the Healthcare Informatics Show in Las Vegas, end of February, early March, where we will disclose several HealthSuite applications. So I'm sure that there will be many opportunities to talk to each other in the coming months. Thank you very much for your attendance.

Thank you.