Fourth Quarter and Annual Results Press Conference Speech

Speech by Gerard Kleisterlee, Preseident & CEO, and Pierre-Jean Sivignon, CFO

January 25, 2010

Gerard Kleisterlee:


Ladies and Gentlemen,


When we met here in Amsterdam twelve months ago, we all knew that 2009 was going to be a very challenging year, as we were in the midst of an unprecedented economic downturn. And indeed, the business climate in 2009 proved to be harsh. The contraction of the global economy, including many of our own markets, was no less than dramatic, especially during the first half of the year. GDP fell pretty much all over the place while unemployment increased substantially. We saw a big slump in construction and automotive markets and the Healthcare market in the US continued to be very soft. In short, 2009 offered the most challenging business climate we have seen in a long, long time.


Against that background, I am more than satisfied with our performance in 2009, especially because of our progressive improvement through the year ending with a very strong fourth quarter. A year ago we promised to stay the course and act decisively and so we did. We faced the economic recession head-on, but without sacrificing our ambitions: we continued the vigorous pursuit of our longer-term strategic goals. Inevitably, the difficult market conditions translated into lower sales for Philips, but we saw encouraging quarter on quarter improvement in our top line as the year progressed. On a like-for-like basis, our revenues for Q4 are back at the level of the last quarter of 2008. What is more, at group level we achieved an EBITA of 662 million during the fourth quarter of 2009. This is almost 640 million more than in Q4 2008, translating into a 9.1% EBITA margin.


But it gets even more encouraging if you look at adjusted EBITA, which excludes restructuring, acquisition related and other charges. That margin was 12.3% for the quarter, which is the highest fourth quarter adjusted EBITA percentage for more than a decade, well exceeding the fourth quarter of 2007, in which we posted very strong earnings as you will recall. Needless to say, I find it extremely encouraging to see that today’s Philips is able to post such performance in a downturn as severe as this one.


Our response to the economic downturn was swift, sensible and decisive. In times of great economic uncertainties, especially regarding revenues, management has to focus more than ever on the things it can control: managing the overall cost base and managing cash flow and working capital. We have been carrying out several large cost reduction programs that we embarked on already in the second half of 2008, and the results are now clearly starting to show. We have substantially reduced our costs, bringing them more than in line with lower revenue levels. In total, our cost reduction efforts in 2008 and 2009 will lead to annualized savings of more than EUR 700 million in 2010. And let’s be clear: these saving are recurring, which means they will come back year after year. We also have strictly controlled our discretionary expenses and our working capital. All together this has reduced the break-even point in most of our businesses. These improvements have structurally improved our profitability, with an increasing impact quarter by quarter. This means that we will fully benefit from a recovery in our markets once it arrives.


All this has been achieved while continuing to invest in Innovation, in our brand and in M&A: investments that are essential for our future competitiveness. When the going gets tough, strong companies show the quality of their portfolio, their management and their workforce. But that’s not enough. You need to keep your eye on your longer term objectives as well. In our case, that means we kept working on building up the global leader in Health & Well-being, which is what we want to become. Also in this respect, I am pleased with our progress in 2010. We became an even more sustainable company through further green innovation and we continued to strengthen our brand in the global arena. We also strengthened our relationships with our customers and substantially increased our net promoter score leadership positions. Lastly, we did quite a few acquisitions. The majority was maybe small in size, but big in relevance for our portfolio. And of course there was the acquisition of Saeco, which made us a leader in the espresso market.


Our fast reaction to the economic downturn, the rapid recovery of our EBITA and our strategic progress during 2009 could not have been possible without our transformation process over the last decade. Philips has become a simpler company that is agile and more resilient to market fluctuations. Our strategy to become a leader in Health & Well-being works. Many of our key markets benefit greatly from long-term trends. Some examples are an aging population, the increasing importance of emerging markets, the rise of the empowered consumer and the greening of our societies and economies, the rise of the empowered consumer and the increasing importance of emerging markets. These trends are important for us today, but more importantly, their relevance in the years to come, will only further increase.


With that, let’s look at our sectors, where you clearly see our strategy to focus on key markets in Health & Well-being in combination with our fast and decisive business management in 2009 is paying off. In 2009, Healthcare showed excellent double digit sales growth in emerging economies, whereas the healthcare market in the US remained challenging throughout the year. The resilience of our Healthcare sector in difficult times was borne out by its very strong Q4 with an adjusted EBITA margin of 20%. Consumer Lifestyle made great progress in improving the results of its TV business and achieved an especially encouraging recovery of its adjusted EBITA margin to 11.4%. Lighting, while hit hard by difficult market conditions especially in non residential construction, is clearly starting to benefit from our decisive restructuring efforts. In the last quarter of 2009, sales in emerging markets, in Lumileds and in automotive were much higher than in Q4 2008, while also Lamps saw enjoyed excellent growth, driven by the demand for energy efficiency. As you see, we are making substantial progress in all our business. Sales substantially improved quarter on quarter throughout the year, while adjusted EBITA shows a very healthy upward trend across our sectors as well.


All this is a far cry from our performance in the last serious crisis period we went through, in a positive sense. Allow me to walk you through a slide that will illustrate this to you in a clear way.


The last crisis period we saw was the collapse of the tech bubble in the 2000 to 2002 period. As you can see here, global GDP growth declined during this time about 2.5%, but it remained positive and never reached the point of contraction. Now, compare that to this crisis where GDP growth did not just fall. It actually declined by three times as much as in the previous downturn, dipping well below zero in 2009. In all, you see a much tougher environment this time around.


Let’s overlay this with our sales performance for both periods. In 2001, you see sales declining sharply, to almost minus 20%. The same thing happened in this recession period. What is remarkable, however, is that our sales decline this time around is not more severe than in 2001, whereas GDP decline was much more severe


Now, let’s look at what happens if we add profitability to the mix. In the previous period, adjusted EBITA declined substantially, and even turned dark red in the middle of 2001. After that, you see the line hovering just above or around the zero point for many quarters before showing any substantial pickup. That means that after the previous downturn impacted our profitability, it took Philips quite some time to start making a meaningful operational profit again. This time around, it’s very different. Of course we see an initial impact of the recession on adjusted EBITA, but it’s by far not as sharp as a few years earlier. Overall, we stay in positive territory. But the most encouraging thing you see here is just how fast we rebounded this time around, with EBITA rising substantially quarter after quarter in 2009. And like I said: we didn’t just rebound. We actually posted a record adjusted EBITA for the fourth quarter. All in all it is highly encouraging that our performance in the current crisis seems to confirm that we have indeed become more resilient and agile.


Since we managed through the economic recession sensibly and effectively, Philips’ balance sheet is still in good shape. We are determined to maintain this financial strength, especially since the economic outlook is still uncertain. Therefore, we will not engage in share buy back programs during 2010. On the other hand, as a sign of our confidence in our future, we propose to maintain, despite the high pay-out ratio, our dividend at EUR 0.70 a share, on par with last year. With an eye on maintaining our financial prudence, we will offer our shareholders a choice of cash or stock.


Before I hand you over to Pierre-Jean for a more detailed discussion of our Q4 and full year financial results, I will review the Management Agenda 2009 with you.

As for our performance, the first column, we increased our cash flow, reduced our working capital and – given the testing economic environment – achieved a very satisfactory EBITA performance. We adjusted our cost structure to market conditions.

We also continued to balance risks and opportunities responsibly. On the one hand, we made some attractive acquisitions; we strengthened our position in emerging markets and continued our investments in innovation and our brand. On the other hand, we made sure that we maintained the very robust balance sheet that has served us so well in the current economic turmoil. In all, we delivered on all points on this part of the agenda.


In the column ‘Accelerating change’, we continued to adapt our company to the changing needs of the marketplace, staying focused on what our customers want, both in mature and emerging economies. The strength of our customer-centric approach translated into an improvement in our Net Promoter Score to 60%, against 51% in 2008. This NPS measures the answer to a simple question: “Would you recommend us to a friend or colleague?” The improvement in the ranking of our Philips brand is further confirmation that we are following through on our ‘Sense and Simplicity’ brand promise. So we can put a green mark here as well. 


Our Employee Engagement Score fell one point to 68 compared to 2008 and is now two points short of our target of 70. Although even a minimal fall of such an indicator is always disappointing, it is encouraging to see that in these difficult times – also for our employees – the level of engagement remains quite high. Just as encouraging is that our People Leadership Index, which measures how effective our leaders are in engaging their people, has gone up considerably across the board.


In view of the tough economic situation, we accelerated planned initiatives to increase our effectiveness and efficiency, to lower our cost base and to simplify our structure. In Healthcare, we delayered our management structure to increase speed of execution; in Consumer Lifestyle, we continued to simplify the organization on the back of the successful integration of the former DAP and CE, significantly lowering our break even point; and in Lighting, we further reduced our cost base through various restructuring projects and organized our sales force in line with our channels instead of our products.


As for the last column, ‘Implement strategy’, let me stress again that, despite the difficult economic situation, we remained ambitious and we continued to invest in our key assets: brand, innovation and design. We sustained our investments in emerging markets, increasing our footprint and deepening our understanding of local needs.


We continued on the path of creating value through acquisitions of businesses that fit with our portfolio. In Consumer Lifestyle, we acquired Saeco; a leader in the high-growth, high-margin espresso machine market. In Healthcare we strengthened our position in image-guided intervention and therapy with the acquisition of Traxtal, whereas our offering in LED-based lighting solutions was reinforced with the acquisition of Dynalite and Teletrol, two specialists in lighting controls. At the same time, however, we didn’t grow as much in Emerging Markets as we would have liked, mainly as a consequence of the recession.


Lastly, in 2009, we obtained more than 60% from our revenues from businesses with a leading market position.


So, all in all, we can be quite satisfied with our performance in 2009, in financial results as well as continued strategic progress.


Over to you now, Pierre-Jean.


Pierre-Jean Sivignon:


Thank you Gerard.


Ladies and Gentlemen, thank you also on my behalf for attending this press conference.


Let me also say that from my CFO perspective, the conditions we had to operate in 2009 were particularly tough. Personally, in the various sectors and companies I have been working in over the years, I have never seen markets contract so fast, so globally and so fiercely. In that context, like Gerard, I am pleased with our performance, and I will spend the next 15 minutes or so illustrating in more detail why we think this is the case.


I would like to walk you through our performance in detail for both the quarter and the year, and I will also discuss the action we continued to take in 2009 to address the effects of the global recession on our businesses.


Lastly, I will walk you through the overall financial position of Philips at this point in time. But let us start with looking at our fourth quarter in a bit more detail.


Sales were back at the level of last year on a comparable basis, which is an encouraging signal that the decline in some of our markets may have bottomed. The EBITA for the quarter was 662 million euros, or 9.1% of sales. The difference between this EBITA level and the one of last year is significant. It is a good illustration of the action we took to protect profitability in the face of fierce top line pressure, which Gerard alluded to as well.

As you can see, we posted a 260 million net profit for the quarter.


If we look at sales per sector in the fourth quarter, we see that all our businesses are hovering around zero in terms of comparable growth. As you know, we look at comparable growth, which strips out acquisitions present for less than a year in the portfolio as well as currency fluctuations to make for a better comparison. This suggests that the fall in sales that we have been confronted with for the last four quarters seems to have now stabilized. Healthcare posted a modest decline of 1% in sales, while Consumer Lifestyle grew by the same amount. Lighting sales were flat.


Looking at the same sales figures geographically, you can see that the performance between regions differ significantly. In Mature markets, the US remained under pressure, both in absolute and comparable terms, with a decline of 10 % versus last year. In Europe, sales were flat which is a bit better than what we saw earlier in the year. Emerging markets were the bright spot, where we saw growth of 8%. Considering emerging markets are about a third of our sales and growing in the mix, this was crucially important to us and will increasingly be so in the future.


Now, let’s look at EBITA, the indicator of our operational profitability, in more detail. As said, group EBITA for the quarter increased to 9.1%. Every sector contributed, with all three posting solid improvements in their profitability.  


We created the bottom part of this slide to help you better understand the EBITA excluding the incidentals we recorded during the quarter throughout our sectors, such as restructuring and integration of acquisition related charges. The bottom of the slide gives a view on the underlying profitability per sector which we refer to as adjusted EBITA.


Our adjusted EBITA then for total Philips was 12.3% of sales – which is the strongest ever achieved with this portfolio and for quite a number of years for the company in general in a fourth quarter. At Healthcare, adjusted EBITA was particularly strong at almost 20%. Consumer Lifestyles adjusted EBITA was above 11% - helped by the TV business delivering positive margin in combination with the rest of the portfolio, including peripherals and Audio video product categories, exceeding 16%. Lighting continued its improvement started in the second quarter and posted a 10.0% EBITA margin. In conclusion, all three sectors showed margin improvement versus last year in this fourth quarter. This is a trend that we want to maintain in the future. 


In this period of difficulty, given the harsh economic situation, we focused on the parameters that that we could influence the best. This included costs as we have just seen in the margin improvement but also the working capital part of our cash flow as we will now see.


This slide details the progression in our working capital model over the last two years. You can see that we have continuously quarter after quarter  reduced the amount of working capital – including our inventory levels - we need to run our businesses from above 10% last year to six to eight percent this year. In tough economic times it is all the more crucial to run your business as efficiently as possible from a cash perspective given the scarcity of liquidity.


All of our three sectors contributed to the improvement in our working capital model and therefore in our cash generation. In Consumer Lifestyle working capital became negative. I think that it is important to realize that this improvement is driven by all the elements composing the working capital, that is to say inventory, receivables and payables.  The reduction is largely structural and should be sustainable. It will really contribute in helping us to deliver cash flow in the years ahead.


Next, I would like to look at our performance for the full year 2009 in a little bit more detail.

Clearly, 2009 was a year in which our top line was under a lot of pressure as many markets worldwide contracted although I’m glad to say that the comparable drop in sales was a lot less in the second half of the year than in the first half. Our portfolio of businesses of today taps into more stable markets and our geographic mix is getting more diverse.


For the full year 2009 sales declined by 11% on a comparable basis to 23.2 billion euros.

EBITA exceeded a billion euros, or 4.5% of sales.  On the net level, we reported a 424 million euros net profit compared to a loss of almost a hundred million last year.


Let us look at the revenue performance in more detail. Sales for the year declined across all our businesses – illustrating the pressure we faced throughout our markets. Sales decline was low single digit at Healthcare which is the least sensitive sector to the economy and which continued to see improving sales in emerging markets. Consumer Lifestyle was under more pressure as consumers stopped buying or bought cheaper products. Some product categories like Health and wellness and Shaving and Beauty did better than the bigger ticket items like TV’s. Lighting sales suffered from a drop in construction of new buildings and from less cars being sold.


Over a the 12 month period, we saw overall sales decline throughout all regions in 2009, led by the US, where uncertainties regarding healthcare regulation added to the pressure the recession put on many markets. Sales in Western Europe declined as well, as was the case in emerging markets essentially in the early part of the year.


Let us move now to the income statement. As said, reported EBITA for the year was 4.5% of sales, or slightly more than a billion euros. This is up from the level of 2.8% in 2008.


Healthcare posted a solid 11%, Consumer Lifestyle 4% and Lighting 2.2%. But when you look at the performance excluding the restructuring and other incidental items, you have a better, more representative picture of our adjusted profitability. On this measure, group EBITA was 6.4% for the year which is 0.5% above the level of 2008 in spite of the sales drop of 11% for the year.


It is interesting to note that on an adjusted basis, EBITA constantly improved quarter after quarter in 2009 versus 2008 as illustrated by Gerard in the first part of his presentation.


Sector performance improved gradually across the portfolio, with EBITA margins of 12.2% for Healthcare, 6.2% at Consumer Lifestyle and 6% at Lighting for the year.


Let us look in a bit more details now at one of the dimensions of the work done on the cost base, the fixed cost base. In the fourth quarter of 2008, we rapidly decided we wanted to pull forward many large rightsizing and restructuring programs we had in our plans because we thought the economic downturn was accelerating and would have a profound effect on our top line sales.


The extent of these programs is detailed here. In short, we took rightsizing measures with a total cost of almost a billion between 2008 and 2009. Taking those costs out is an imperative investment in our future. Thanks to these programs, our total fixed cost base in 2009 was 418 million euros lower than in 2008, of which 153 million in the fourth quarter. From 2010 onward, we expect our total yearly fixed costs base to be well over 700 million euros lower than the one of 2008. We believe that this an improvement which is there to stay,  meaning that we will continue to operate at this lower cost base level going forward.


Let us now take a look at our financial situation. On this subject, I will use the same two slides as last year by first showing the profile of our debt in terms of its maturity over the years to come. And then I will talk about the liquidity of the company.


Today, I can actually announce that we have just started the process to refinance the 2.5 billion dollars standby credit facility you see here on this slide which matures in 2011.This line is undrawn but is of course an essential part of our financial capacity. You should think of this standby facility as our cash safety net, money we can immediately call on, should we ever need it. I cannot tell you much more at this point on the renewal process, but it looks like we will be able to announce a completed refinancing deal soon.


As you can see on this slide, our debt installments are reasonably spread over the future with an average maturity of 9.5 years. This is largely due to the decision taken in early 2008 – before the crisis started – to refinance our bond debt into long term paper at cheaper rates. It is also important to note that none of our debt is tied to any covenant.


Let’s look at the other important financial component of our overall financial situation, our liquidity. As you know, we have been operating with a positive cash position for years now, and at the end of 2009 our cash balance was a positive 4.4 billion euros.  In addition, we have a committed stand-by credit facilities, as I’ve just indicated, totaling 1.9 billion euros. This brings our total liquidity to 6.3 billion euros as at the end of the year. This is a solid position going into 2010. And that is exactly what we like to be in, at a time where financial markets and access to liquidity remain parameters to certainly keep an eye on.


With that, I would like to give the floor back to Gerard.


Gerard Kleisterlee:


Thank you, Pierre-Jean.


Ladies and Gentlemen,


With our global focus on Health & Well-being, Philips is very well positioned to benefit from the economic recovery, because we offer products and solutions that are in line with some of the most important long-term global trends. This is how we execute on our mission to improve quality of people’s lives. Our products and solutions increasingly reflect the promise of our Brand to deliver Sense and Simplicity in everything we do. The Brand is a key strength of our Company, supported by a common, end-user driven innovation process. Together with our technology know how , our IP positions, our global presence and broad channel access, our engaged workforce and our efficient shared services, they form the building blocks of a company positioned for success.


For the next decade, global growth will come mainly from emerging economies and we are well-positioned to benefit from the growth in these markets. We have a strong, well-established position in countries such as China, India and Brazil and we are rapidly expanding our presence in emerging markets through investments and acquisitions. Over 30% of our revenues already comes from emerging economies and this percentage is bound to increase further as our businesses grow stronger in these markets.


In addition, we have created many platforms on which to build the future expansion of our businesses. We are the global leader in many important markets. From home healthcare to professional lighting, from cardiac ultrasound to electric shavers and energy-efficient lamps, Philips is at the top. This is important for us for many reasons, and we will continue to invest in building out our globally leading businesses further.  For all these reasons, I am confident that we can achieve healthy and profitable growth in the years to come.


Our drive on sustainability fits entirely with our focus on Health and Well Being and is also a strategic driver for innovation and growth. Our energy-efficient lighting solutions can play a tremendous role in the reduction of energy consumption and CO2 emissions. And they can do so today already – whether or not a Copenhagen deal is being successfully negotiated for example. But more in general, we have known for many years that sustainability just makes good business sense. We are well on our way to achieving the goals of our Ecovision 4 program, which runs from 2007 until 2012. In fact, we will give the market a full update on our progress against our sustainability targets on February 22 when we publish our annual report and sustainability report. Focusing on sustainability makes environmental and business sense: you can operate at lower long-term costs and tap into new revenue opportunities in high-growth sectors.


Turning to our three sectors, during 2009 Healthcare performed extremely well in emerging markets with double digit growth. For the first time, our total Healthcare sales in the BRIC countries (Brazil, Russia, India and China) exceeded one billion euro. Europe also saw modest growth, whereas, revenues in the US – still our biggest market in Healthcare – were negatively affected by uncertainty regarding healthcare reform and by the continued impact of the Deficit Reduction Act. In imaging systems, we continued to expand our offering in emerging markets. The MOU we signed to establish an Industrial Campus for imaging systems in China is a good illustration of our efforts.


The worldwide progress at our Home Healthcare business was also very encouraging. In this respect, our recent five-year agreement with Dutch insurer Achmea Health to cooperate in the development of innovative home care solutions for chronically ill patients is an example of the way forward.


Because of the success of our people-centric solutions, we see good possibilities to increase our global market share in imaging. We will continue to expand our offering of imaging equipment specifically targeted at emerging economies such as China, India and Brazil. At the same time, we will strive to improve our market share in more mature economies.


Further growth of our Home Healthcare business is another important priority. Because of an aging population and the rise of chronic diseases, home healthcare is becoming a rapidly growing solution which can increase the quality of healthcare while reducing overall costs. The imperative to ensure that healthcare is both available and affordable has put healthcare reform on the political agenda in many countries, including the US and China. In the US, it now seems only a matter of time before a final version, one way or the other, is approved by Congress and president Obama.


Consumer Lifestyle saw a very encouraging increase in its EBITA margin in the second half of the year. Despite a dramatic fall in sales, our television business greatly improved its margins and is poised to reach full year profitability in 2010. The license partnerships with Funai for our televisions in the US and with TPV Technology for our monitors are clearly paying off, as are the restructuring of the manufacturing and supply base in our TV business. Our TV business is now clearly focused on added-value products and this is paying off, as in 2009 we again became the clear market leader in TV in the Netherlands for instance. At the same time, we shouldn’t forget that our non-TV business, which is the vast majority of Consumer Lifestyle’s revenues’, did very well in a difficult environment. Our Consumer Health and Wellness business continued to grow throughout the year. In appliances, we have great expectations from our acquisition of Saeco, the Italian producer of espresso machines. We are now a global leader in coffee appliances and cover the full market, from drip filter through Senseo to fully automatic espresso machines


For its future growth, Consumer Lifestyle wants to accelerate in clearly defined value spaces, particularly in Health and Wellness businesses. It will also focus on growing in emerging markets, where Consumer Lifestyle already generates 38% of its revenues and where our business is profitable based on an excellent reputation and brand recognition. Consumer Lifestyle is resolutely allocating marketing resources, innovation efforts and human talent to these markets.


After a hard but necessary process of restructuring, our Lighting sector has strongly rebounded and going forward will continue to benefit from  a significantly lower break even point. What’s more, regarding its product portfolio, Philips Lighting is where it has to be. We are the global leader in lamps, but also in the sectors that matter most going forward: energy efficient lighting, professional luminaires, LED-based products and applications, and automotive. During 2009, we further strengthened our portfolio with the acquisitions of Ilti Luce, Dynalite, Selecon and Teletrol. We are increasingly offering complete lighting solutions as opposed to lighting products and that is precisely where the market value will be in the future.


As a result, Lighting is set for that future. We will fully benefit from the recovery in the automotive and construction industries. We also stand to benefit more and more from the trend towards more energy-efficient lighting, a trend that is common among public authorities, companies and consumers. Philips is also more than ready for the transition to even more versatile and energy-efficient LEDs and other forms of solid state lighting. The warm welcome in the US to our LED lamp, which can replace traditional incandescent 60 Watt bulbs, is an encouraging sign of things to come. We are confident we can become the leading provider of solutions for outdoor lighting and grow in consumer luminaires. At the same time, we will endeavor to optimize our manufacturing and supply structures during the transition from the traditional incandescent lightbulb to more energy efficient lighting solutions.


To work towards a conclusion of my speech, allow me to take you through our Management Agenda for 2010. This year, too, we have arranged our goals under three headings: Drive Performance, Accelerate Change and Implement Strategy. I will go through them one by one, and will also detail the cluster of initiatives that is in the third column under the header key strategic initiatives per sector.


Looking at Performance, we shall continue to focus on cash flow generation, containment of working capital and reduction of our fixed costs. We will also endeavour to improve our cost agility, further increasing our flexibility if and when we have to adapt our costs to changing circumstances. That said, restructuring in 2010 is by no means expected to be anything close to the size of 2009. The first item you see in this column is to drive top-line growth and market share. This is very important to us. With the sustainably lower cost base we now have, we want to make sure we tap into growth as much as we can when markets recover meaningfully and sustainably. I will get back to several concrete objectives to this end later on.


Accelerating change depends mainly on customer centricity and employee engagement. Customer centricity is an essential condition for sustainable growth and profitability. It means that even more than today, the customer or client has to be at the absolute center of everything we do. That’s why our innovations, our technology and our design have to be meaningful and end-user driven. As a people-centric company, we know we can only win the trust of our customers by understanding and anticipating their needs and by sharing our insights with them. We also aim to further improve our Net Promoter Score, by increasing the number of our businesses with NPS leadership or co-leadership positions. At the same time, we shall continue to work hard to increase our employee engagement to a high performance level.


Our column ‘Implement Strategy’ is this year focused on growth.

In Healthcare, we are starting a multi-year effort to move towards a global leadership position in imaging. At the same time, we expect to grow our Home Healthcare business significantly. In Consumer Lifestyle, we want to grow our Health and Wellness business, benefiting from the trend towards a more empowered consumer, who likes to play an active role in increasing their health and well-being. At the same time, we are confident we can further improve the results of our TV business, managing it towards profitability.


In Lighting, we already have outstanding market positions in most of our businesses, but we want to focus on further improvement in some sectors. We aim to become a leader in outdoor lighting solutions and grow our consumer luminaires business. We also want to optimize our lamps lifecycle. Overall, for Philips as a company, our goal is to increase our market share in emerging markets.


As you can see, and I believe this current economic downturn has demonstrated clearly just how important this point is, our activities are better balanced from every angle you look at it. Be it as a percentage of total sales per sector, or geographically. This, coupled with our focus on markets that stand to benefit from inescapable and important global trends, provides a natural resilience to economic cycles that we feel good about. Evidently, the short-term performance of our businesses will also be affected by the development of the incipient economic recovery. There is reason for cautious optimism, but we should not get ahead of ourselves. Our financial institutions still have a long way to go before their balance sheets will have fully recovered; until then, the pain from the past will hamper their provision of credit to industry. All the public stimulus programs have helped to avoid an even deeper economic downfall, but these programs cannot last forever and the price to pay is an enormous public debt. High unemployment figures may still dampen the economic recovery; the risk of a double dip is not negligible. But whatever the economy does over the next 12 months, our results for 2009 and the last quarter specifically show that we have come to grips with the recession.


Ladies and Gentlemen,


The year 2009 was a year in which Philips proved its mettle. We stayed our strategic course while successfully managing the downturn. Philips has proven that it is now a simpler, more resilient and more agile company, with the right portfolio focused on Health and Well-Being. During good times and bad, we are sticking to our company values, our strategy and our ambition. We know who we are, where we are headed and how to get there. We are confident that in 2010, if the economic recovery doesn’t stall, we can improve our results substantially, because of our lower cost base and because of our strong positions in key markets. 2009 was a challenging year, but we are optimistic about our future.


Thank you very much for your attention.