[Slide 1 – Title slide ] [Slide 2 – Forward looking statement] [Slide 3 – Sense & Simplicity – on when Gerard Kleisterlee starts to speak] Ladies and Gentlemen, On behalf of the Board of Management I’d like to welcome you too to this meeting. [Slide 4 – Highlights] Let me say that 2006 was a busy and successful year for Philips, a year that has seen our company emerge as a strong player from a process of transformation to make Philips a simpler, more focused company, built around a strong brand. In a landmark transaction, we created shareholder value by selling a majority stake in our Semiconductor division in September. This focuses our company on less cyclical, profitable growth businesses with leading market positions. These have been further strengthened by the strategically aligned acquisitions that we announced and/or completed in 2006. All together this will contribute to sustainable long-term growth of earnings for our shareholders. The sizeable share repurchase and cancellation program and our revised dividend payout policy will further deliver value to our shareholders. [Slide 5 – Performance of the Philips Group ] As you can see here, our figures have been restated to show Philips’ performance 2006 versus the year before after having factored out the contribution of Semiconductors. Our group sales were just under EUR 27 billion for the year, comparably up 6% from 2005, in line with our medium term target of 5-6% of average annual growth. [Slide 6 – Y-o-Y quarterly sales growth] Growth was driven by all of our four main operating divisions, with above average growth in Domestic Appliances, Lighting and Medical Systems, the high-margin businesses we’ve earmarked for further expansion. [Slide 7 – EBIT – FY] Our operating profit – otherwise known as EBIT – or earnings before interest and tax – ended up at almost EUR 1.2 billion. The decrease compared with 2005, is entirely due to one-off items. Our bottom line – that is our net income – was substantially higher, on the back of the proceeds from the sale of a majority stake in our Semiconductors business. In December 2006 we announced that as of 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. [Slide 8 – 2006: Acceleration of capital reallocation] With the sale of our Semiconductors business and the ongoing divestment of our Corporate Investment portfolio, 2006 was also a year that saw the biggest reallocation of capital. Away from cyclical components businesses and into expanding our high-margin businesses through value creating acquisitions as well as returning capital to shareholders through tax efficient share buy back and subsequent cancellation of shares. [Slide 9 – ~EUR 4 billion of mostly add-on acquisitions made over the past 18 months] As you can see, over the past 18 months, we have made consistent moves through acquisitions to further expand our Medical Systems, Lighting, and Domestic Appliances businesses, while also in Consumer Electronics we made some smaller moves in the area of peripherals and accessories. During that time we spent approximately EUR 4 billion on acquisitions – mainly of companies that rounded out the presence Philips already had in specific markets. In 2006, we completed six of these acquisitions and we have completed our latest acquisition – namely, of the home luminaires manufacturer, Partners in Lighting International, during the first quarter of this year. [Slide 10 – Portfolio changes in 2006] All in all the significant portfolio changes executed in 2006 are having a positive impact on our financial results. Taken together, Lifeline, Witt, Avent and Intermagnetics had 2005 sales of approximately EUR 415 million and an EBIT margin of 14.5%. This compares to a number of divestments, which – like for like, in 2005 – had sales of approximately EUR 1.6 billion, but were loss making. So, through these transactions, we were able to make a positive contribution to the underlying quality of our earnings. [Slide 11 – Share price gained momentum compared to the Soxx Index (Semiconductors industry)] Financial markets traditionally have closely associated our company with the Semiconductors industry given our exposure to this sector. This is clear when looking at the development of our share price against the Philadelphia Semiconductors Index over the past three years. But as you can see, gradually investors also began to recognize the transformation taking shape at Philips during 2006 – in particular following the announcement of the disentanglement and eventual sale of our Semiconductors business. [Slide 12 – 2006 Management Agenda] As usual, we set out a Management Agenda for the company. I’d like to take a few moments to review the progress we made last year in implementing this agenda. First, I am pleased to say we have made our financial targets for 2006. Top-line has grown 6% and in the fourth quarter our EBIT margin reached 8.2%. Our performance allowed to guide you to above 7.5% EBITA for 2007 which is a sharper target than the previous objective of 7-10% EBIT for the portfolio which also included Semiconductors. Growing Healthcare as part of the portfolio – this has been achieved as well through a number of targeted acquisitions – targeted also in the sense that we do not aim to grow healthcare at any cost, but only when our strict norms of value creation are met. Overall, healthcare now represents 27% of our portfolio based on sales going forward. Accelerating the movement to become a simpler, market oriented organization – this has been done in multiple ways. Taking out a complete regional management layer, redesigning our sales and support organizations in local markets around customer segments, further reducing bureaucracy to create more time for dealing with customers, these are just a few of the examples which fall into this category. On Semiconductors enough has been said. Stimulating entrepreneurialism we have done both by stepping up our recruitment of a different breed of business people from outside and by putting talent from within our own organization on a fast career track. And, last but certainly not least, we are well on our way to exceed our ambitious cost savings targets. [Slide 13 – A well-balanced portfolio in consumer retail and professional markets build around the brand] A truly brand and market driven company must think brand and market, not division. Our customers do not buy from a division – they buy from Philips. So increasingly we apply more collaborative customer centric approaches in our organizational way of working – and with much success. When you add up our activities accordingly into customer facing segments, we operate in three distinct market spaces, namely Professional Healthcare, Professional Lighting and Consumer Retail. [Slide 14 – Creating growth opportunities in healthcare, lifestyle and technology] In accordance with our strategy to expand in our chosen domains of healthcare, lifestyle and technology we are aiming to create growth opportunities by leveraging all our key assets. As we close the book on 2006, it’s clear we are entering a new period in the company’s history that is centered foremost on creating value through growth. Our job will be to continue fine-tuning and blending all these ingredients to create the best recipe for long-term, sustainable growth at Philips. Let me briefly comment on some of them. [Slide 15 – Brand investments drive growth] The Philips brand is one of the key assets of the Company and by consistently investing in it we see its value go up. The “sense and simplicity” positioning is getting us traction in the market and thereby contributes to our growth. [Slide 16 – Innovation drives growth] R&D, well connected to the market, remains a major source of innovation. This allowed us in 2006 to further improve the proportion of new products in our sales.It is generally undestood that new innovative products drive both growth and profitability. [Slide 17 – Professional Healthcare] With this in mind, let me review our progress and prospects for each of the three markets we serve… In the professional medical domain we continue to bring innovations into the hospitals that enable doctors to provide their patients with better care. Using technology to improve access to healthcare is an issue of increasing importance both in the developed world and in emerging markets – and Philips is well positioned in both . This is a high margin business that we have earmarked for further growth. [Slide 18 Acquisitions] In addition to organic growth we are therefore investing in acquisitions, and as you know, in 2006 we have done four such acquisitions in companies that each strengthen us in particular segments. [Slide 19 – Professional Lighting] Increasingly lighting becomes another engine for stronger, profitable growth alongside our healthcare activities. Be it in industrial environments, in city beautification, in impacting the shopping experience, in car safety or in people’s homes – our innovative approaches to lighting have a proven appeal in all these contexts and we are continuing on this path. The LED revolution and the need for more energy efficient solutions will be strong drivers to accelerate the growth of our lighting division and enable us to further expand our global leadership position. [Slide 20 – Acquisitions] And here, too, we have been investing in targeted, value accretive acquisitions of high margin companies. [Slide 21 – Consumer Retail] And also in Consumer Retail we see Philips book clear successes with new and innovative products. The Ambilight television with its unique lighting ambience sold its millionth’ piece in 2006. In Domestic Appliances the Wake-up Light we introduced is yet another example of a lifestyle enhancing combination of features which, like the Ambilight, is a clear proofpoint of how we are delivering on our brand promise of ‘sense and simplicity’. As we inceasingly join forces in the retail channels we can overall attain attractive margins throughout the entire value chain. [Slide 22 – Acquisitions] And in the consumer domain we have been making acquisitions in 2006 too which bring us in promising new, adjacent categories. [Slide 23 – Total Return to Shareholders – 3 Years] In past years we have given you regular updates on our relative position vis-à-vis the performance of peer companies. It is good to see that, with our 2006 performance, we moved up from 12th to 7th position in this group of 22 companies.The list of peer companies reflected the composition of our portfolio which at the time was heaviliy leaning towards high volume electronics, including Semiconductors. Reflecting Philips’ transformation , we now must review the peer group. [Slide 24 – Adapt peer group to Philips transformation] This is what we have done, and what you see here is what we will propose to our shareholders is going to be our new peer group. By reducing the number of technology companies and adding a few diversified industrial companies, we create a more balanced group that reflects the portfolio we currently have. [Slide 25 – Total Return to Shareholders – 3 Years] With this new peer group we will compare our performance from now on. [Slide 26 – Stockholders’ equity per share almost doubled during the past 4 years] Throughout 2006, we maintained a strong balance sheet and continued to increase our shareholder equity per share. We expect to improve the efficiency of our balance sheet as we step up the pace and size of our acquisition activities and as we continue with our program to return capital to shareholders through tax-friendly share buy-backs and dividends. [Slide 27 – Biggest dividend increase in 10 years] In this context it is relevant to remark that our changed company profile will has led us to revise our dividend policy. Philips’ present dividend policy is based on an average annual pay-out ratio of 25-35% of continuing net income. We propose a revised dividend policy which raises this average annual pay out ratio to 40-50% of continuing net income. Consistent with this revised dividend distribution policy, we have submitted a proposal to you to declare a dividend of EUR 0.60 per common share, an increase for the third consecutive year and the biggest increase in ten years! In 2006 a dividend of EUR 0.44 per common share was paid. [Slide 28 – Management Agenda 2007] In 2007, the main management actions from a shareholder perspective will be: - We will maintain annual average sales growth of 5-6% and achieve above 7.5% EBITA margin
- We will pursue value creating acquisitions in professional and consumer markets where Philips can realise synergies, create value and have a leading position
- We will continue to redeploy capital in a disciplined way through value-creating acquisitions, share buy-backs and dividends. This means that we will end up with an appropriately leveraged balance sheet probably in no more than 2-3 years. Let me be more specific for you: we are currently reviewing a number of possible acquisitions and it is our clear stated policy and practice to return excess cash to shareholders.
[Slide 29 – Sense & Simplicity] Ladies and Gentlemen, As I come to a close of my remarks today, let me state that Philips is well positioned for more success. In the past years of profound transformation we have acquired a reputation for saying what we do and doing what we say. Furthermore, we are well positioned to continue improving profitability and capital deployment and so drive shareholder value. Ladies and gentlemen, This concludes today’s remarks from my side. I thank you for your sustained confidence and I thank you for your attention. ENDS (25 mins) |