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Philips to complete its transformation from a cyclical technology company to a healthcare and lifestyle company built around a strong brand


Thursday, August 03, 2006

* Philips to return approximately EUR 4 billion to shareholders through dividends and share repurchase.
* Company increases its focus on growth in Healthcare and Lifestyle sectors.

Amsterdam, The Netherlands– Royal Philips Electronics announced its intent for capital allocation following the divestment of an 80.1% majority share in its Semiconductor unit. The transaction, announced separately today, values this business at around EUR 8.3 billion.

Proceeds from the sale, after tax and transaction-related costs, will total approximately EUR 6.4 billion. Philips will return a total of EUR 4 billion to shareholders by the end of 2007 through a combination of dividends and share repurchases, including the EUR 1.5 billion share repurchase program already announced on July 17, 2006.

The company reiterated its strategy to re-invest in additional opportunities for high-margin growth, both organically and through acquisitions. In the last 12 months Philips has announced the investment of EUR 3.5 billion in eight acquisitions (some yet to be completed), predominantly in Medical Systems, Lighting and Consumer Health and Wellness. These have brought almost EUR 1 billion in new revenue and over 5,000 employees into the group. The company noted that the earlier acquisitions were performing in line with, or better than, expectations. R&D investment in targeted areas such as Lighting and Domestic Appliances has been increased, in order to stimulate organic growth. Philips also re-confirmed its intent to exit from its participations in LG.Philips LCD and TSMC in a responsible manner. In addition, Philips will continue to improve its cost structure by simplifying the organization and its ways of working.

“With this transaction we have now practically completed our shift towards more stable, cash generative businesses and away from the earnings volatility associated with cyclical industries like Components and Semiconductors, a journey we started in 2002,” said Gerard Kleisterlee, President and CEO of Philips.

“We close the chapter of being a traditional, vertically integrated electronics company – which is why, going forward, we would like to be known just as Royal Philips. This emphasizes the shift in our focus to a company built around a brand with the promise of “sense and simplicity” and with a focus on Healthcare and Lifestyle,” Kleisterlee said.

Kleisterlee explained that Philips was now a much simpler company, committed to improving the quality of peoples’ lives through meaningful innovation. He said resources would be focused on capturing value from some of the most important global economic, social and demographic trends. Notable among these were the trend for better healthcare and more well-being, the need to provide energy efficient solutions (e.g. in lighting) and the desire for rewarding consumer lifestyle experiences.

All these elements, together with the Semiconductors transaction will contribute to redefining Philips as a core value holding stock, in contrast with the historic perception of an electronics stock exposed to the volatile technology sector.

About Royal Philips Electronics

Royal Philips Electronics of the Netherlands (NYSE: PHG, AEX: PHI) is one of the world’s biggest electronics companies and Europe’s largest, with sales of EUR 30.4 billion in 2005. With activities in the three interlocking domains of healthcare, lifestyle and technology and 158,000 employees in more than 60 countries, it has market leadership positions in medical diagnostic imaging and patient monitoring, color television sets, electric shavers, lighting and silicon system solutions. News from Philips is located at

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.


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