Philips updates market on main Consumer Business

Tuesday, December 05, 2006 - Amsterdam, the Netherlands – In a meeting with investors and financial analysts today, Royal Philips Electronics (AEX: PHI, NYSE: PHG) will discuss how Philips’ two main consumer businesses – Consumer Electronics and Domestic Appliances and Personal Care (DAP) – continue to deliver on their aggressive value creation objectives. The company will also highlight steps being taken to tighten the link between its research and development, business incubator activities and the market to create additional value for Philips.

Consumer Electronics sustaining value creation with robust business model

Philips repeats its earlier stated guidance that the company expects the operating (EBIT) margin in Consumer Electronics in 2006 to be slightly shy of 4%. “After 8 consecutive quarters of profitability, I believe we’ve shown our asset-light business model is the right strategy for succeeding in the highly-competitive consumer electronics market,” Rudy Provoost, CEO of Philips Consumer Electronics, said.

To increase the division’s competitiveness and boost value creation further, Philips is drawing on its strong track record of innovation to reinvent or create new product categories with higher margins – such as in its high-definition FlatTVs with Ambilight, voice-over-IP telephony or immersive AmbX gaming accessories that enhance the consumers’ gaming experience. The company also continues to support innovation through targeted acquisitions in consumer electronic peripherals and accessories – a business that is achieving double-digit growth and EBITA (earnings before interest, taxes and amortization) margins of 8% to 10%.


DAP fully on track to continue delivering sustainable profitable growth

In DAP, Philips remains on track to delivering on its long-term, average annual growth rate of 7%. “By enlarging the scope of our categories, leveraging our strong presence in high-growth emerging markets, and further re-directing R&D investments towards breakthrough innovation, we’re on track to building a substantially more valuable Domestic Appliances and Personal Care business over the next three years,” Andrea Ragnetti, CEO of Philips DAP, said.

Strong organic growth is expected in all business units and geographies as Philips has entered new high growth segments such as rice cookers and water purification for emerging Asian markets. Through the acquisition this year of AVENT Holdings Ltd., Philips has also created a solid platform in the growing and profitable Mother and Child Care space, and the company will continue exploring value-creating acquisitions across the portfolio.


‘One Philips’ approach strengthens position with key international retailers

Rudy will also discuss how accelerated, closer collaboration between Philips’ main consumer businesses is becoming a key success factor in growing the company’s business with international retailers, which collectively accounted for approximately 40% of Philips’ retail business in 2005. With the setup of an International Retail Board that oversees global key account management and joint business planning with strategic customers, Philips has delivered on its brand promise of sense and simplicity through an approach that is designed around the retailer, by offering an aligned strategic partnership that is better customized to retailers’ needs.


Philips to continue investing successfully in its brand

According to the annual Interbrand ranking of the most valuable global brands, the value of the Philips brand increased over the last two years from USD 4.4 billion to USD 6.7 billion, climbing 17 places to enter the top 50 global brands at number 48. The company will continue investing, and will earmark approximately EUR 100 million for the corporate brand campaign in 2007. During the meeting, Andrea will also review how centrally managed Strategic Marketing is helping optimize R&D investments, improve go-to-market plans and ultimately deliver higher organic growth for Philips.


Philips to create additional value through Innovation & Emerging Businesses group

At today’s meeting, Philips will also announce that, as of January 2007, the main activities within the company’s Other Activities business segment will be repositioned as the Innovation & Emerging Businesses group. By leveraging the Philips’ brand, technology base and distribution network, the company aims through this group to invest in projects that are not currently part of Philips’ operating divisions, but which will lead to additional organic growth or create value through future spin-offs.

The repositioned Innovation & Emerging Businesses group will include Corporate Research, Philips’ Business Incubators and Intellectual Property, as well as Consumer Healthcare Solutions. The Corporate Investments portfolio will be fully divested in the first half of 2007.

The global service units will become part of Group Management & Services costs, which will also contains corporate and regional costs, pension costs, and corporate investments in the Philips brand.


Group Management & Services (GM&S) costs to be reduced by EUR 75 million

Simplification of the country management structure, removal of a regional management layer and the transfer of staff to NXP to establish their corporate center will lead to a reduction in corporate and regional costs that make up part of Group Management and Services by EUR 75 million on a run-rate basis by the end of 2007. Furthermore, part of these corporate services, as well as part of Philips’ intellectual property portfolio maintenance costs, will be charged to the divisions that drive and create value from these resources.


Philips to report EBITA to increase financial transparency

Also beginning in 2007, Philips will increasingly make reference to EBITA when updating the market on the margin performance of its businesses. Referencing EBITA will provide greater transparency into the underlying performance of Philips’ businesses by factoring out the amortization of intangible assets. Amortization of intangible assets occurs, for example, when acquisitions are consolidated.

In terms of EBITA, Philips’ group margin target will exceed 7.5% for 2007 onwards, which is consistent with previous earnings guidance. The EBITA margins for the product divisions for 2007 are expected to be approximately 3% in Consumer Electronics, 15% in DAP, 12% in Lighting and 14% to 15% in Medical Systems.

About Royal Philips Electronics

Royal Philips Electronics of the Netherlands (NYSE: PHG, AEX: PHI) is a global leader in healthcare, lifestyle and technology, delivering products, services and solutions through the brand promise of “sense and simplicity”. Headquartered in the Netherlands, Philips employs approximately 126,000 employees in more than 60 countries worldwide. With sales of EUR 30.4 billion in 2005, the company is a market leader in medical diagnostic imaging and patient monitoring systems, energy efficient lighting solutions, personal care and home appliances, as well as consumer electronics. News from Philips is located at www.philips.com/newscenter.

Forward-looking statements

This release may contain 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. 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 and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.

Contact Information

Jayson Otke

Philips Corporate Communications

Royal Philips Electronics

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