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

Date Announced: 18 Oct 2011 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 2011Solid 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 programThrough 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 2013Philips 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.”About Royal Philips ElectronicsRoyal Philips Electronics of the Netherlands (NYSE: PHG, AEX: PHI) is a diversified health and well-being company, focused on improving people’s lives through timely innovations. As a world leader in healthcare, lifestyle and lighting, Philips integrates technologies and design into people-centric solutions, based on fundamental customer insights and the brand promise of “sense and simplicity.” Headquartered in the Netherlands, Philips employs over 120,000 employees with sales and services in more than 100 countries worldwide. With sales of EUR 22.3 billion in 2010, the company is a market leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as lifestyle products for personal well-being and pleasure with strong leadership positions in male shaving and grooming, portable entertainment and oral healthcare. News from Philips is located at www.philips.com/newscenter.

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