Philips' Third Quarter Results 2011

Philips delivers 6% sales growth; EUR 800 million savings deployment starts

• Comparable sales up 6%, led by 8% growth at Lighting and 7% growth at Healthcare
• Growth geographies sales increase 13% on a comparable basis
• EBITA at EUR 368 million, or 6.8% of salesFree cash outflow of EUR 172 million 
• Cost-reduction actions commence

Q3 financials: Lighting, Healthcare and growth geographies lead revenue increase. EBITA declines from 11.8% Q3 2010 to 6.8% Q3 2011, marginally below Q2 2011

Solid Healthcare sales growth of 7% and equipment order intake growth of 5%. Investments in R&D and selling expenses required for new product launches negatively affected margins in the quarter.

Consumer Lifestyle growth businesses showed high-single-digit sales growth. Results affected by investments for growth and a strong decline at Lifestyle Entertainment.

Lighting grew by a strong 8%, driven by LED at 32%. Investments in selling and R&D, higher raw material costs, and adverse Lumileds and Consumer Luminaires performance led to a decline in earnings.

Moving forward on Accelerate!, Philips’ change and performance program

Through this program, Philips is investing in growth, addressing structural change, focusing on execution, reducing overhead costs and adopting a new company culture. The organization is responding well to these initiatives, which have started to reach deep in the organization. The implementation of the Philips Business System has begun to improve granular performance insights, enhancing management accountability and prompting corrective actions. In addition, Accelerate! includes a cost-savings program that targets EUR 800 million in savings and aims to significantly decrease complexity and overhead costs, while at the same time reinvesting in innovation and customer-facing resources. About 60% of the savings are people-related and will result in the loss of 4,500 positions, 1,400 of which will be in the Netherlands. The remaining 40% relate to other structural costs.

Commitment to our path to value by 2013

Philips reiterates its 2013 mid-term financial targets of 4-6% sales growth, 10-12% EBITA, and 12-14% ROIC. During the quarter the company completed 24% of its EUR 2 billion share buy-back program.

CEO quote:

“We are focused on improving the performance of Philips, driven by our change program Accelerate! We see the first signs of traction to accelerate growth through step-ups of investments in innovation and to win customers. We are still in the early stages of a multi-year overhaul to become a more entrepreneurial and lean company, but we are encouraged by the response of our employees.

Our cost reduction plan of EUR 800 million has now been detailed, and we are in the process of deploying it across the organization as we optimize all overhead and support costs not directly involved in the operational customer value chain. The cost savings program will lead to the loss of approximately 4,500 jobs, which is a regrettable but inevitable step to improve our operating model to become more agile, lean and competitive.

The negotiations with TPV for the creation of the Television Joint Venture are intense and constructive. Although these negotiations are taking longer than expected, we continue to work together to come to definitive agreements soon. For the eventuality that a final agreement cannot be reached, Philips will consider its alternative options. The process of disentangling the TV business from the rest of Consumer Lifestyle is progressing well and according to plan.

Our Healthcare revenues are growing, led by a strong product portfolio. We are closely monitoring the overall economic environment and its potential impact on the Healthcare business in the medium term. Our growth businesses in Consumer Lifestyle continue to gain traction. And Lighting, despite operational and performance issues that are being addressed, is sustaining its global leadership position, and we are particularly pleased with our high growth in energy-efficient LED lighting solutions.

We are not yet satisfied with our current financial performance given the ongoing economic challenges, especially in Europe, and operational issues and risks. We do not expect to realize a material performance improvement in the near term. Our renewed focus on innovation and customer intimacy, supported by a changing culture that embraces entrepreneurship and accountability, will unlock the full potential of our portfolio and set the stage for profitable growth. We are taking the right steps to achieve our 2013 mid-term financial targets.”

CEO, Frans van Houten of Royal Philips Electronics

For more information please visit the Philips Investor Relations pages

See video: Philips CEO Frans van Houten comments on Third quarter results

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Forward-looking statements
This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items,in particular the sector sections “Miscellaneous”.

Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.

These factors include but are not limited to domestic and global economic and business conditions, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims,changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forwardlooking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2010 and the “Risk and uncertainties” section in our semi-annual financial report for the six months ended July 3, 2011.

Third-party market share data
Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

Use of non-GAAP information
In presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found in our Annual Report 2010.

Use of fair-value measurements
In presenting the Philips Group’s financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data do not exist, we estimated the fair values using appropriate valuation models and unobservable inputs. They require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our 2010 financial statements. Independent valuations may have been obtained to support management’s determination of fair-values.

All amounts in millions of euros unless otherwise stated; data included are unaudited. Financial reporting is in accordance with IFRS, unless otherwise stated. This document comprises regulated information within the meaning of the Dutch Financial Markets Supervision Act ‘Wet op het Financieel Toezicht’.