Annual Results 2004
Algemene Vergadering van Aandeelhouders 31 maart 2005
Forward Looking Statements 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 (including, but not limited to, cost savings) in particular the outlook paragraph in this report. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, levels of consumer and business spending in major economies, changes in consumer tastes and preferences, changes in law, the performance of the financial markets, pension costs, the levels of marketing and promotional expenditures by Philips and its competitors, raw materials and employee costs, changes in exchange and interest rates (in particular changes in the euro and the US dollar can materially affect results), changes in tax rates and future business combinations, acquisitions or dispositions and the rate of technological changes. Statements regarding market share, including as to Philips competitive position, contained in this document are based on outside sources such as specialized 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 GAAP measures and should be used in conjunction with the most directly comparable US GAAP measure(s). A discussion of the non-gaap measures included in this document and a reconciliation of such measures to the most directly comparable US GAAP measure(s) are contained in this document. 3
Algemene Vergadering van Aandeelhouders 31 maart 2005
2004 Management Agenda Achieve 14% EBITA in Medical Systems Implement CE renewal program to achieve stable 4-4.5% IFO by the end of 2005 Accelerate profitable growth through sustained transformation of Philips into a market driven organization Extend number of product leadership positions and increase innovation rate across the group Continued focus on indirect costs to achieve additional savings of 250M + 5
Performance of the Philips Group EUR million 2001 2002 2003 2004 Sales 32,339 31,820 29,037 30,319 Income from operations (1,395) 420 488 1,607 Results relating to UCCs (608) (1,346) 506 1,422 Net income (loss) (2,475) (3,206) 695 2,836 Cash flow from operations 1,248 2,228 1,992 2,697 Inventories as % of sales 13.3 11.1 11.0 10.7 Net debt to group equity 26 : 74 27 : 73 18 : 82 1 : 99 Employees 188,643 170,087 164,438 161,586 6
Euro vs. Dollar sales Sales (billion) 40 EUR billion US$ billion 30 20 10 0 '99 '00 '01 '02 03 2004 7
Income from Operations (IFO) amounts in EUR million 2003 2004 Medical Systems DAP CE (incl.licences) Lighting Semiconductors Other Activities Unallocated 431 398 248 577 (342) (263) (561) 34 323 361 591 450 366 (518) Philips Group 488 1,607 8
Publicly quoted investments - market value amounts in EUR million Dec, 2003 Dec, 2004 Mar 30, 2005 TSMC 5,748 5,174 5,568 JDS Uniphase 114 91 49 FEI 150 124 151 Great Nordic 35 56 60 Atos Origin 1,081 516 538 LG.Philips LCD - 4,031 4,877 NAVTEQ - 1,043 1,017 Total 7,961 11,035 12,260 9
No.1 in DJ Sustainability Index 2003 and 2004 Highlights 21 Green Flagship products Supplier Declaration KPI s set for 2005 New Ecovision 2006-2009 in the making 10
Share price development 3 Year 40 30 20 10 0 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 11
Total Return to Shareholders 3 Year CAGR Jan 02 Dec 04 - % (100) (34) (37) (37) (38) (42) (43) (46) (51) (51) (56) (60) (61) (61) (61) SAMSUNG ELECTROLUX (2) (8) (9) (13) (13) (14) (15) 52 14 LG SHARP GILETTE EMERSON SIEMENS MOTOROLA MATSUSHITA WHIRLPOOL HITACHI GENERAL ELECTRIC ROYAL PHILIPS ELECTRONICS TEXAS INSTRUMENTS SONY IBM INTEL SANYO NOKIA TYCO NEC ERICSSON LUCENT MARCONI 12
Strategy Evolution High Volume Electronics Towards One Philips Healthcare, Lifestyle, Technology 1996-2000 2000-2003 2003 - Portfolio One Philips Restructuring Growth Let s make things better Sense and Simplicity 13
Creating value in high volume electronics Added Value Analogue Intellectual Property Digital Brand R&D Semiconductors Manufacturing Marketing & Sales 14
Creating value in Medical systems Leading companies Technology Market position Focused integration Platform for growth 6 B Marconi 2002 Agilent ADAC 2000 ATL Ultrasound 1998 Philips Medical Systems 1997 15
Delivering results MAT Quarterly Sales Adjusted (for exchange rates), M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 MAT Quarterly EBIT % Nominal, % 14% 12% 10% 8% 6% 99 00 01 02 03 04 99 00 01 02 03 04 Note: PMS excludes HCP; PMS EBIT excludes special items and incidentals 16
Becoming a more market driven organization Successful introduction of Sense and Simplicity Launched Board led cross-pd Key Account management Extensive deployment of the brand pillars across the organization Advanced Easy to experience Designed around you 17
Significant new product introductions in 2004/2005 IU22 Brilliance CT scanner 18
Significant new product introductions in 2004/2005 Ambilight TV PerfectDraft Nightguide 19
Restored profitability IFO as percentage of sales 1 7 10% 5.8% (0.5%) 2001 2004 2006/2007 Restored profitability Meet our targets 1 Adjusted for non-recurring items 20
next step is to meet our target IFO as percentage of sales 1 7 10% 5.8% (0.5%) 2001 2004 2006/2007 Restored profitability Meet our targets 1 Adjusted for non-recurring items 21
Philips competes in three markets Healthcare Lifestyle Technology 22
Healthcare provides a significant opportunity for all of Philips Significant macro economic drivers Aging population Patient as Consumer Broadband internet penetration Home healthcare solutions Strong margins and consistent growth Product complexity and importance of brand All divisions have identified opportunities to participate 23
Our Ambition To maintain consistent quarterly performance while moving to a phase of revenue driven profit growth to build a company with A significantly higher market capitalization Significantly higher revenue We want to realize this through Achieving a 7-10% operating profit Reducing earnings volatility 5-6% average annual organic growth Adding value through acquisitions 24
One Philips Mission We improve the quality of people s lives through timely introduction of meaningful technological innovations Vision In a world where technology increasingly touches every aspect of our daily lives, we will be a leading solutions provider in the areas of Healthcare, Lifestyle and Technology, aspiring to become the most admired company in our industry as seen by our stakeholders 25
Group Strategy Increase profitability through allocation of resources towards opportunities with consistently higher returns Leverage the Philips brand and our core competencies to grow in selected areas across Healthcare, Lifestyle and Technology and develop new businesses at their intersection Build partnerships with key customers and suppliers for B2B and B2C markets Continue to invest in world class innovation and leverage strong IP position Strengthen our leadership competencies Drive productivity through Business Transformation and Operational Excellence 26
Group Strategy & Product Divisions Medical Systems Domestic Appliances Consumer Electronics Lighting Key area of revenue driven value growth, both organic and through acquisition Value growth, further developing the consumables business model Establishing world leading Consumer Health & Wellness business Focus on margin improvement in selecting products, customers and markets Adding value through brand and supply chain leverage Aggressively grow in solid state and special lighting applications Semiconductors Balanced portfolio delivering IFO levels of 5-15% over a cycle Asset light strategy to support this 27
2005 Management Agenda Grow Healthcare as part of the portfolio Continue the transformation of Philips into a market driven organization Focus on innovation across the Group Reduce earnings volatility of cyclical businesses Further simplifying Philips reducing overall costs by an additional 500M in savings (3-4 years) 28
Summary From restructuring to growth Focus on Innovation Higher margin products & markets Consistent quarter-on-quarter financial performance improvement Strong operational cash flow 29
Annual Results 2004