royal philips electronics annual results 2000 · pdf filegroup equity and net debt ... •...

February 8, 2001February 8, 2001

Royal Philips ElectronicsRoyal Philips ElectronicsAnnual Results 2000Annual Results 2000

2

“Safe Harbor” Statement under the“Safe Harbor” Statement under thePrivate Securities Litigation Reform Act ofPrivate Securities Litigation Reform Act of

October 1995October 1995These presentations and discussions/document contain certain forward-looking statementsThese presentations and discussions/document contain certain forward-looking statements

with respect to the financial condition, results of operations and business of Philips andwith respect to the financial condition, results of operations and business of Philips andcertain of the plans and objectives of Philips with respect to these items. By their nature,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 eventsforward-looking statements involve risk and uncertainty because they relate to eventsand depend on circumstances that will occur in the future. There are a number of factorsand depend on circumstances that will occur in the future. There are a number of factors

that could cause actual results and developments to differ materially from thosethat could cause actual results and developments to differ materially from thoseexpressed or implied by these forward-looking statements. These factors include, butexpressed or implied by these forward-looking statements. These factors include, but

are not limited to, levels of consumer and business spending in major economies,are not limited to, levels of consumer and business spending in major economies,changes in consumer tastes and preferences, the levels of marketing and promotionalchanges in consumer tastes and preferences, the levels of marketing and promotional

expenditures by Philips and its competitors, raw materials and employee costs, changesexpenditures by Philips and its competitors, raw materials and employee costs, changesin future exchange and interest rates, changes in tax rates and future businessin future exchange and interest rates, changes in tax rates and future business

combinations, acquisitions or dispositions and the rate of technical changes. Marketcombinations, acquisitions or dispositions and the rate of technical changes. Marketshare estimates contained in this report are based on outside sources such asshare estimates contained in this report are based on outside sources such as

specialized research institutes, industry and dealer panels, etc. in combination withspecialized research institutes, industry and dealer panels, etc. in combination withmanagement estimates.management estimates.

3

•• Double digit growth inDouble digit growth inEarnings per ShareEarnings per Share

Group ObjectiveGroup ObjectiveSet in 1996Set in 1996

•• RONA above 24%RONA above 24%

•• Positive cash flowPositive cash flow

Financial Group ObjectivesFinancial Group Objectives2000 Results2000 Results

73 % excluding incidentals ’99-’0073 % excluding incidentals ’99-’00 3335.7 % including incidentals35.7 % including incidentals

24.2 % excluding incidentals24.2 % excluding incidentals 33€€ 3.0 billion 3.0 billion 33

4

AgendaAgenda•• What we accomplished in 2000What we accomplished in 2000

–– PerformancePerformance

–– HighlightsHighlights

•• Financials for FY2000 and Q4Financials for FY2000 and Q4

•• Looking aheadLooking ahead

–– Technology CompanyTechnology Company

–– Short term issuesShort term issues

–– Medium term outlookMedium term outlook

CorCor Boonstra Boonstra

Jan HommenJan Hommen

Gerard Gerard KleisterleeKleisterlee

5

Performance HighlightsPerformance Highlights

•• Achieved targets set in 1996Achieved targets set in 1996

•• Stimulated sales growth – reached 20%Stimulated sales growth – reached 20%

•• Announced mergers and acquisitionsAnnounced mergers and acquisitionstotaling over totaling over €€ 5 billion5 billion

•• Achieved Cash Flow Achieved Cash Flow from Operatingfrom OperatingActivities ofActivities of €€ 3.0 3.0 billionbillion

Performance of the Philips GroupPerformance of the Philips GroupRestatedRestated1)1), , €€ million million

1) Restated excluding:1) Restated excluding: PolyGram PolyGram,, Grundig Grundig, Philips Media, ASML, Philips Media, ASML

29,658 29,65899

1,7141,7145.85.8

16.416.4

1,2311,231

-103-103

1,3341,334

19971997

30,459 30,45933

6856852.22.26.56.5

541541

-375-375

916916

19981998

31,45931,45933

1,7511,7515.65.6

17.517.5

1,8041,804

247247

1,5571,557

19991999 20002000

37,86237,8622020

4,2814,28111.311.335.735.7

9,6029,602

7,0387,038

2,5642,564

SalesSales•• % nominal growth% nominal growth

Income from operationsIncome from operations•• as a % of salesas a % of sales•• as a % of net operatingas a % of net operating

capital (RONA)capital (RONA)

Income from Cont. OperationsIncome from Cont. Operations

One-time gainsOne-time gains

Income from Cont. OperationsIncome from Cont. Operations excluding one-time gains excluding one-time gains

6

7

Income from Continuing OperationsIncome from Continuing Operations€€ billion billion

19901990 '91'91 '92'92 '93'93 '94'94 '95'95 '96'96 '97'97 '98'98 '99'99

(2.1)(2.1)

0.30.3

(0.6)(0.6)

0.20.20.70.7 1.01.0

0.10.1

1.21.2

0.50.5

1.81.8

20002000

2.62.6

7.07.0

9.69.6

One-timegains

Growth of the Product DivisionsGrowth of the Product Divisions2000 Nominal Revenue Growth2000 Nominal Revenue Growth

MedicalMedicalsystemssystems

LightingLighting

ConsumerConsumerElectronicsElectronics

DAPDAP

ComponentsComponents

Semi-Semi-conductorsconductors

+ 22%+ 22%

+ 11%+ 11%

+ 18%+ 18%

+ 17%+ 17%

+ 19%+ 19%

+ 49%+ 49%

Philips GroupPhilips Group+ 20%+ 20%

8

9

Group Equity and Net DebtGroup Equity and Net Debt €€ billion billion

‘94‘94 ‘95‘95 ‘96‘96 ‘97‘97 ‘98‘98 ’99’991)1) ’00’001)1)19901990 ’91’91 ‘92‘92 ‘93‘93

3.03.0 3.93.95.15.1

2.62.6

(3.0)(3.0)

1.01.0

6.36.37.17.1 6.96.9 9.79.7

14.814.8 15.115.1

Net Debt

Group Equity

4.04.05.95.9

6.86.84.94.9

7.67.66.06.06.86.8 6.06.0

22.222.2

2.92.9

1) Share buybacks of 1) Share buybacks of €€ 1.5 billion 1.5 billion in 1999 and in 1999 and €€ 1.7 billion 1.7 billion in 2000 in 2000

Performance of SemiconductorsPerformance of Semiconductors€€ million million

RevenueRevenue•• % nominal growth% nominal growth

Income from operationsIncome from operations

•• as a % of revenueas a % of revenue

•• as a % of net operatingas a % of net operatingcapital (RONA)capital (RONA)

4,557 4,5571515

614614

13.513.5

23.123.1

19991999

6,8126,8124949

1,3461,346

19.819.8

35.535.5

20002000

•• 49% nominal top line growth49% nominal top line growth•• Strong Q4: 38% growthStrong Q4: 38% growthversus 99Q4versus 99Q4

•• Over Over €€ 2 billion investments 2 billion investmentsin acquisition and expansionin acquisition and expansionofof fabs fabs (with ST Micro- (with ST Micro-electronics and IBM)electronics and IBM)

•• OpenedOpened fab fab in Singapore in Singapore•• Increased share position inIncreased share position inTSMC to TSMC to 29.4%29.4%

Highlights of 2000Highlights of 2000

10

SemiconductorsSemiconductors•• Over Over €€ 2 billion investments in acquisition and expansion 2 billion investments in acquisition and expansion

of of fabsfabs, including:, including:–– Wafer pilot-lineWafer pilot-line fab fab with with STMicroelectronicsSTMicroelectronics (joint (joint

investment of $ 700 million) in Franceinvestment of $ 700 million) in France–– Acquisition of IBM’sAcquisition of IBM’s MiCRUS MiCRUS wafer wafer fab fab in the USA in the USA

•• Systems-on-Silicon Manufacturing Company (SSMC)Systems-on-Silicon Manufacturing Company (SSMC) fab fabin Singapore yielded first siliconin Singapore yielded first silicon

•• Increased share position in TSMC to 29.4%Increased share position in TSMC to 29.4%

•• Completed integration of VLSICompleted integration of VLSI

11

Performance of ComponentsPerformance of Components€€ million million





5,325 5,32511

286286

5.45.4

13.713.7

19991999

6,3326,3321919

569569

9.09.0

26.526.5

20002000

•• 120% growth in Optical120% growth in OpticalStorage, and doubling CD-RWStorage, and doubling CD-RWcapacitycapacity

•• Sale of Discrete and FerriteSale of Discrete and FerriteCeramics businessesCeramics businesses

•• Announced JV with LG in CRTAnnounced JV with LG in CRT


12

13

New Joint Venture with LGNew Joint Venture with LGCreating the #1 Supplier ofCreating the #1 Supplier ofCRT Tubes World WideCRT Tubes World Wide

SamsungSamsung

ThomsonThomson

Philips + LGPhilips + LG

Market Share CRT TubesMarket Share CRT TubesPercentPercent

SonySony

#2#2

#4#4

#1#1

#3#3

1515

77

25251313 1212

1212

Performance of CEPerformance of CE€€ million million





12,602 12,60211

258258

2.02.0

15.715.7

19991999

14,85214,8521818

374374

2.52.5

20.720.7

20002000

•• Leadership in optical storageLeadership in optical storagewith CD-Rwith CD-R

•• Improved position in DVD toImproved position in DVD tomarket leadership in Europemarket leadership in Europe

•• Increased transparency byIncreased transparency bycreating dedicated unitscreating dedicated units

•• Turnaround in MainstreamTurnaround in Mainstream•• Strong improvement inStrong improvement inMonitorsMonitors

•• Brand image improvementBrand image improvement


14

15

CD-CD-Recordable Recordable LeadershipLeadership

•• Philips #1Philips #1

•• Adopted by all industryAdopted by all industryplayersplayers

•• Prelude to DVD+RWPrelude to DVD+RW





19991999 20002000 Highlights of 2000Highlights of 2000

Performance of LightingPerformance of Lighting€€ million million

4,597 4,59722

602602

13.113.1

32.732.7

5,0975,0971111

668668

13.113.1

34.734.7

•• Strong growth inStrong growth inAutomotive and SpecialtyAutomotive and SpecialtyLightingLighting

•• Strong market demand forStrong market demand forUltra High Power LampUltra High Power Lamp

•• Continuous RONAContinuous RONAimprovementimprovement

16

17

Ultra High Power LampUltra High Power Lamp

Very strong market demand for UHP LampVery strong market demand for UHP Lamp





19991999 20002000 Highlights of 2000Highlights of 2000

Performance of DAPPerformance of DAP€€ million million

1,817 1,81733

220220

12.112.1

45.145.1

2,1302,1301717

287287

13.513.5

53.553.5

•• Acquisition ofAcquisition of Optiva Optiva to tostrengthen Personal Carestrengthen Personal Care

•• High growth and againHigh growth and againimproved RONA to 53.5%improved RONA to 53.5%

18

Performance of MedicalPerformance of Medical€€ million million





2,495 2,4952727

181181

7.37.3

18.318.3

19991999

3,0473,0472222

169169

5.55.5

10.310.3

200020001)1)

19

•• Achieved leadership inAchieved leadership inCardiology throughCardiology throughacquisition ofacquisition of Agilent Agilent and andADACADAC

•• Acquisition of Acquisition of MedQuistMedQuist

•• IFO of IFO of €€ 169 mln including 169 mln including€€ 140 mln of goodwill 140 mln of goodwilldepreciationdepreciation


1)1) Includes Includes MedQuist MedQuist from Q3 onwardsfrom Q3 onwards

20

Origin – Atos mergerOrigin – Atos merger1999 Sales European IT Market, 1999 Sales European IT Market, €€ billion billion

4.6

3.7

2.8

2.4

1.6

1.3

1.2

1.0

Cap GeminiCap Gemini

GetronicsGetronics

Atos OriginAtos Origin

SemaSema

WM DataWM Data

LogicaLogica

TietoEnatorTietoEnator

CMGCMG

OriginOriginAtosAtos

••Created a leading pan-Created a leading pan-European IT services companyEuropean IT services company

••De-consolidation from PhilipsDe-consolidation from Philipsaccountsaccounts

21

Where do we stand?Where do we stand?

•• All Divisions are strengthenedAll Divisions are strengthened

towards market leadershiptowards market leadership

22

Market Market GrowthGrowthCAGRCAGR‘00-’04‘00-’04

Philips market share/market share #2 Philips market share/market share #2

M&A & Investment ActivitiesM&A & Investment ActivitiesTotalling Totalling €€ 13 billion, 1996-2000 13 billion, 1996-2000

5%5%

10%10%

0.50.5 1.51.511

0%0%

25%25%

-10%-10%

LightingLighting

SemiconductorsSemiconductors

MedicalMedical

OriginOrigin

DigitalDigitalNetworksNetworks

SpecialtySpecialtyProductsProducts

PCCPCC

PCBAPCBA

MainstreamMainstream


DAPDAP

•• Merger AtosMerger Atos

•• VLSIVLSI•• MiCRUS, SSMCMiCRUS, SSMC

•• LG.PhilipsLG.Philips JV JV•• CRT JVCRT JV

•• ATLATL•• MedQMedQ..

•• LumiledsLumileds•• Small businessesSmall businesses

•• OptivaOptiva•• AgilentAgilent•• ADACADAC

23




•• In a much focused portfolioIn a much focused portfolio

24

Business ElectronicsBusiness Electronics•• DatacommunicationsDatacommunications•• NotebooksNotebooks

PolygramPolygram

OriginOrigin


Passive componentsPassive components


Philips MediaPhilips Media

SupplySupply

MediaMedia

Sound & VisionSound & Vision

LightingLighting

Car SystemsCar Systems

GrundigGrundig

ConsumerConsumer

•• ReginaRegina

Industrial ElectronicsIndustrial Electronics

MiscellaneousMiscellaneous

•• Radiation therapyRadiation therapy•• Pie MedicalPie Medical

ProfessionalProfessional

OtherOther

Focus in Businesses 1996-2000Focus in Businesses 1996-2000No longer No longer PhilipsPhilipsdivisionsdivisions

Domestic AppliancesDomestic Appliances

Medical SystemsMedical Systems

•• Mendes Mendes GansGans•• Philips Financial ServicesPhilips Financial Services•• BankgeschaftBankgeschaft Heinrich Heinrich BenkeBenke•• Travel agencyTravel agency

•• Smart cardsSmart cards•• Industrial X-RayIndustrial X-Ray•• OptoelectronicsOptoelectronics•• 10 small operating units10 small operating units

•• VideoVideo•• AudioAudio•• CommunicationsCommunications

•• PrimoPrimo•• Bang & Bang & OlufsenOlufsen•• Vision Hire / Radio RentalVision Hire / Radio Rental

•• CeramicsCeramics•• MiscellaneousMiscellaneous

•• Sport 7Sport 7•• SuperclubSuperclub•• SoftwareSoftware•• UPC (cable operator)UPC (cable operator)•• InfogramesInfogrames

25

Focus in Divisions 1996 - 2000Focus in Divisions 1996 - 2000

1313




LightingLighting


Consumer ElectronicsConsumer Electronics

66

Car SystemsCar Systems

Business ElectronicsBusiness Electronics




LightingLighting

Sound & VisionSound & Vision

PolygramPolygram


OriginOrigin

MediaMedia

Industrial ElectronicsIndustrial Electronics

GrundigGrundig

26





•• Which brings us halfway intoWhich brings us halfway into

our step 1, 2, 3 strategy processour step 1, 2, 3 strategy process

27

Strategy ProcessStrategy ProcessStep 1 Step 2 Step 3

33All financialAll financialobjectivesobjectives

reached in 2000reached in 2000

Moving towardsMoving towardshigh growthhigh growth

portfolioportfolio

Regainingfinancialcredibility

Building aplatform forprofitablegrowth

Becoming a shaperBecoming a shaperof high growthof high growth

technologytechnologybusinessesbusinesses

TransformPhilips into a“TechnologyCompany”

3333333333

28


With a top-5 TRSWith a top-5 TRSperformanceperformanceversus our peersversus our peers




•• Which brings us halfway intoWhich brings us halfway into

our step 1, 2, 3 strategy processour step 1, 2, 3 strategy process

29

TRS of the Peer GroupTRS of the Peer GroupCAGR Oct 1, 1996 – Feb. 1, 2001CAGR Oct 1, 1996 – Feb. 1, 2001

949454545353

51515050

4848373736363535

31313131

23232323

2121151515151515

121299

7766

331100

NokiaNokiaTITITycoTycoNortelNortelPhilipsPhilipsEricssonEricssonSiemensSiemensIBMIBMSamsung Samsung GEGEIntelIntelSonySonyMarconiMarconiElectroluxElectroluxLucentLucentNECNECEmersonEmersonSanyoSanyoMatsushitaMatsushitaMotorolaMotorolaLG ELG EWhirlpoolWhirlpoolHitachiHitachiGilletteGilletteSharpSharp 00

30












31

1,2071,2072,5952,595

680680122122247247

1,0721,0721,1151,115

9,6029,602

7,0387,038

2,5642,564

Net income as publishedNet income as published

Incidentals gains after taxIncidentals gains after tax•• JDS JDS UniphaseUniphase•• ASMLASML•• TSMCTSMC•• BeltoneBeltone•• Ceramic ComponentsCeramic Components•• Atos OriginAtos Origin•• Seagram/Seagram/VivendiVivendi Universal Universal

Adjusted Net IncomeAdjusted Net Income

Net IncomeNet Income€€ million million

++

32

0

10

20

30

40

50

Net gain of€ 2,595 million

ASMLASMLShare price May ‘98 - 2000, Share price May ‘98 - 2000, €€

29/05/9829/05/98 29/12/0029/12/0019991999 20002000

33

Net gain of€ 526 million

Net gain of€ 681 million

JDS JDS UniphaseUniphaseShare price 1996 - 2000, $Share price 1996 - 2000, $

0

30

60

90

120

150

31/01/9631/01/96 19981998 2000200019971997 19991999 29/12/0029/12/00

34


Seagram Seagram VivendiVivendiShare price 1996 - 2000, Share price 1996 - 2000, €€

0

20

40

60

80

100

120

140

31/01/9631/01/96 19981998 2000200019971997 19991999 29/12/0029/12/00

Vivendi

Seagram

35


AtosAtosShare price 1996 - 2000, Share price 1996 - 2000, €€

0

40

80

120

160

200

31/01/9631/01/96 19981998 2000200019971997 19991999 29/12/0029/12/00

36

• Achieved record earnings with double digit growthof EPS 73% - excluding incidental gains

• Achieved record RONA of 24.2%, excludingincidentals, meeting our target

• Achieved positive cash flow of € 592 million

• Acquisitions during the year of € 3.7 billion

• Divestitures during the year of € 4.4 billion

• Share buy-back to the amount of € 1.7 billion

Highlights Year 2000Highlights Year 2000

37

• Sales growth - Nominal 20%, Comparable 11%

• Large increase in income from non-consolidatedcompanies, especially TSMC

• Continuing restructuring charges to improve ourfuture performance of € 203 million

• Increase of goodwill and related charges to€ 466 million from € 264 million in 1999

Highlights Year 2000 – ContinuedHighlights Year 2000 – Continued

38

Net Income 4th Quarter 2000Net Income 4th Quarter 2000€€ million million

1,0721,0721,1151,115

2,7922,792

2,1872,187

Net income as publishedNet income as published

Incidentals gainsIncidentals gains•• ATOS OriginATOS Origin•• Seagram/Seagram/VivendiVivendi Universal Universal ++

--605605

197197

802802

One-off chargesOne-off charges

Adjusted Net IncomeAdjusted Net Income

39

•• Goodwill (ADAC and VCS)Goodwill (ADAC and VCS)•• Provision JubileeProvision Jubilee•• Already disposed of activitiesAlready disposed of activities•• Discontinuation of TDMA activitiesDiscontinuation of TDMA activities•• LicensesLicenses

IFO ImpactIFO Impact

•• Less taxationLess taxation

•• Taxation TSMCTaxation TSMC

Net Income impactNet Income impact

One-off Charges 4th QuarterOne-off Charges 4th Quarter€€ million million

7979555519192222

15 15

190190

- 40- 40

150150

4747

197197

40

•• Completion of the Atos Origin merger which yielded aCompletion of the Atos Origin merger which yielded aone-off gain of one-off gain of €€ 1,072 million 1,072 million

•• Completion of the exchange of Seagram for Completion of the exchange of Seagram for VivendiVivendiUniversal shares yielded a one-off gain of Universal shares yielded a one-off gain of €€ 1,115 1,115millionmillion

•• Acquisition of ADAC completed Acquisition of ADAC completed €€ 437 million 437 million

•• Acquisition of TSMC Redeemable Preference SharesAcquisition of TSMC Redeemable Preference Sharesfor for €€ 458 458 million increasing our shareholdingmillion increasing our shareholding in TSMCin TSMC

•• Acquisition of LG Electronics Convertible RedeemableAcquisition of LG Electronics Convertible RedeemablePreference Shares for Preference Shares for €€ 505 million 505 million

•• In December we have seen a weakening of someIn December we have seen a weakening of somemarkets that affected usmarkets that affected us

Highlights 4th Quarter 2000Highlights 4th Quarter 2000

41

Sales GrowthSales GrowthPercentPercent

Nominal growth (Nominal growth (€€))

•• Consolidation changesConsolidation changes

•• Currency changesCurrency changes

Comparable growthComparable growth

•• Price erosionPrice erosion

•• Volume growthVolume growth

19991999 20002000 19991999 20002000

1111 1515 33 2020

00 - 2- 2 - 2- 2 00

77 1010 22 99

44 77 44 1111

- 7- 7 - 5- 5 - 8- 8 - 5- 5

1111 1212 1111 1616

4th Quarter4th Quarter YearYear

42

Performance: Inventory LevelsPerformance: Inventory LevelsPercentage of MAT SalesPercentage of MAT Sales

19.519.5

16.416.4

18.118.1

14.914.9

17.517.5

14.014.0

15.615.6

13.913.9

15.815.816.416.4

19.619.619.719.7

19.219.2

14.514.514.414.4

14.714.7

18.918.9

16.916.9 17.117.116.416.4

18.818.8

13

14

15

16

17

18

19

20

21

22

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q1996 1997 1998 1999 2000

43

Cash FlowCash Flow€€ million million

Cash flow fromCash flow fromOperating activitiesOperating activities

Cash flow from InvestingCash flow from Investing•• Capital expendituresCapital expenditures•• Purchase of businessesPurchase of businesses

and assetsand assets•• Sale of businesses andSale of businesses and

securitiessecurities

20002000 19991999

2,9962,996 1,9131,913

-2,404-2,404 -3,834-3,834

592592 -1,921-1,921Cash flow before FinancingCash flow before Financing

-1,576-1,576-3,047-3,047

787787

-3,132-3,132-3,706-3,706

4,4344,434

++ ++

44

Goodwill AmortizationGoodwill Amortization in IFOin IFOand and Unconsolidated CompaniesUnconsolidated Companies

€€ million million

20

7570

50 53 5675

15824

25 18 22

42

42

75

94

75 71 78

117

200

1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00

20

UnconsolidatedUnconsolidatedCompaniesCompanies

Goodwill andGoodwill andrelated chargesrelated charges

45

• 4Q00 IFO was 21.1%, compared 20.5% in 3Q00

• Sequential revenue growth of 6% 4Q00 vs. 3Q00

• Book-to-bill in the fourth quarter was lower than 1

• Price erosion in 2000 on average was 3%. Pricepressure increased in Q4, we anticipate it could be6-7% in 2001

• Capex in 2000 was € 1.8 billion including theMiCRUS acquisition. For 2001 we are currentlyplanning for € 1.4 billion Capex depending onfurther market developments


46

• Based on a “soft landing” approach we expect the 1Q01sales to be approx. 15% lower than 4Q00 howeverapprox. 15% above 1Q00.

• We expect total 2001 sales to be more than 15% higherthan 2000. This means we expect to outgrow the industrydue to

– our balanced portfolio (Consumer, Communications,no memory or flash memory products)

– high growth in Networking and Identification

• Our expected growth is still consistent with a € 10 billionannual run-rate of sales towards the end of 2002.

Semiconductors - ContinuedSemiconductors - Continued

47

• Mobile Display Systems has grown 25% in units(2000 vs. 1999) and 62% in sales value

• New organization in Kobe (Japan) now commencesproduction of small color LCD screens

• Negative results in large LCD production in Kobe inview of announced discontinuation

• Continuing to build up capacity for, predominantly,the wireless phone and PDA market

Components – Flat DisplayComponents – Flat Display

48

• IFO in 4Q00 of approximately 7.5% in spite of

– weaker Monitor tube business

– weaker TV tube business in the USA and Asiaexcluding China

• JV with LG Electronics expected to be completed bythe end of the second quarter

• Outlook remains difficult for the coming months

• Capex plans are being reduced

• Announced restructuring plans being accellerated

Components – Display ComponentsComponents – Display Components

49

• Small loss in the quarter compared to an IFO ofapproximately 12% in 3Q00

• Significant slowdown in CD-Rewritable withDecember sales in units being 50% of sales inSeptember, as a consequence of slow-down in PCmarkets

• Short-term action taken to reduce headcount andrephase capacity expansion

• Beyond the short-term we continue to expectsignificant growth in the future

Components – Optical StorageComponents – Optical Storage

50

• Solid growth of sales in Europe and Latin America,however a slight decline in NAFTA

• The IFO continues on an improving trend benefiting fromthe recent organisational changes which led to a betterbottom line accountability

• Significant improvement in the monitors businessparticularly improved productivity and product mix

• Continuing improvement in Audio

• Continuing R&D investments for market leadership in DVDand DVD+RW

• Continuing investments in E-commerce and brand equity

Consumer Electronics - MainstreamConsumer Electronics - Mainstream

51

• 32% Nominal sales growth 4Q00 vs. 4Q99• Penetrated new major accounts, roll-out delayed• € 22 million additional obsolescence charge

• 4Q00 GSM unit sales increased by 65%• Discontinuance of TDMA activity created a loss of €

22 million in the quarter• Continuing readjustment of the cost base• 4 new products to be introduced Q2, including one

GPRS product

• 22% nominal sales growth 4Q00 vs. 4Q99• Results include restructuring charges for speech and

a one-time charge for VCS• Reorganization effective February 1

DigitalNetworks

PCC

SpecialtyProducts

Consumer Electronics – ContinuedConsumer Electronics – Continued

52

• Strength in Eastern Europe and Asia compensatesweakness in the USA in the last quarter

• Market growth remains limited with increasedcompetition and some price erosion

• Automotive & Special Lighting strong growth of12-13% and expanding capacity

• Underlying improvement programs continue tomove ahead with additional restructuring requiredin 2001

• IFO includes € 12 million charge in 4Q00 for aone-time Jubilee provision

LightingLighting

53

• Results for the quarter were ahead of expectations afterallowing for charges of € 44 million totally of in-process R&Dfor ADAC, adjustment of ATL and MedQuist goodwill

• ATL was profitable for the whole year after goodwill, in linewith the original plan

• The completion of the acquisition of the medical business ofAgilent is expected before the end of the second quarter.

• The annual IFO shows a considerable underlying increase,after adjusting for the above, even after increasing R&Dexpenditure by € 35 million to improve our position mainly inMagnetic Resonance and Computer Tomography

• The order book has increased on a comparable basis over ayear ago by 12% which indicates a higher sales growth rate


54

• Nominal growth of 19% 4Q00 vs. 4Q99

• IFO of 16% in 4Q00 compared to 14% in 4Q99

• Optiva acquisition completed and integrationprocess is in line with the plan

• Product range rationalization continues

Domestic Appliances &Domestic Appliances &Personal CarePersonal Care

55

•• We had a good fourth quarterWe had a good fourth quarter

•• Slow-down in PC and Telecom market growthSlow-down in PC and Telecom market growthtemporarily creating overcapacity impacting ourtemporarily creating overcapacity impacting ourComponents and PCC businessComponents and PCC business

•• In CE making progress with turnaround forIn CE making progress with turnaround forMainstream, while Digital Networks and SpeechMainstream, while Digital Networks and Speechare issues being addressedare issues being addressed

•• Although slower growth, Semiconductors isAlthough slower growth, Semiconductors isexpected to outperform the marketexpected to outperform the market

Summary ConclusionSummary Conclusion

56












57

Looking AheadLooking Ahead•• Philips is now a financially robust company.Philips is now a financially robust company.

We will continue our commitment toWe will continue our commitment tooutperformance outperformance and achieving Best in Classand achieving Best in Class

•• To do so we are continuing to build theTo do so we are continuing to build thePhilips Group into a technology companyPhilips Group into a technology companywith a strong brand and cash flowwith a strong brand and cash flow

•• We are increasing our medium term targetsWe are increasing our medium term targetsto new levels of performance, whileto new levels of performance, whileremaining cautious for 2001remaining cautious for 2001

58

Strategy ProcessStrategy ProcessStep 1 Step 2 Step 3

33All financialAll financialobjectivesobjectives

reached in 2000reached in 2000

Moving towardsMoving towardshigh growthhigh growth

portfolioportfolio

Becoming a shaperBecoming a shaperof high growthof high growth

technologytechnologybusinessesbusinesses

Regainingfinancialcredibility

Building aplatform forprofitablegrowth

TransformPhilips into a“TechnologyCompany”

3333333333

59

Objective of the Philips GroupObjective of the Philips GroupPosition Philips as aPosition Philips as a

high growth technologyhigh growth technology company andcompany anddo what is ‘best’ for each business,do what is ‘best’ for each business,

‘best’ meaning to achieve‘best’ meaning to achieveprofitable growth withprofitable growth with

sustainable market leadership positionssustainable market leadership positionsthat further create shareholder value,that further create shareholder value,

consequently adapting the structure andconsequently adapting the structure andcomposition of the Groupcomposition of the Group

60

Technology LeaderTechnology Leadership Areasship Areas

Digital VideoDigital Video

EXAMPLESEXAMPLES

Examples:Examples:•• Wireless handsetsWireless handsets•• Set-top boxesSet-top boxes•• BluetoothBluetooth ICs ICs

Examples:Examples:•• Audio/DVDAudio/DVD•• Optical StorageOptical Storage

modulesmodules•• Consumer ICsConsumer ICs

Examples:Examples:•• Consumer TVConsumer TV•• One Chip TVOne Chip TV•• LG.PhilipsLG.Philips•• Light EnginesLight Engines•• 3D Medical Imaging3D Medical Imaging

Examples:Examples:•• TV/DVDTV/DVD•• Set-top boxesSet-top boxes•• TriMediaTriMedia / / NexperiaNexperia•• RF TunersRF Tuners

ConnectivityConnectivity

StorageStorageDisplayDisplayDigital VideoDigital Video

ConnectivityConnectivity

StorageStorageDisplayDisplayDigital VideoDigital Video

61

Philips in DisplayPhilips in Display

#1 in One chip#1 in One chipTV ICsTV ICs

#2 in LCD Monitor#2 in LCD Monitor

#3 #3 in CRT Consumer TVin CRT Consumer TV#1 #1 CRT tubes for consumer TVCRT tubes for consumer TV#3 CRT for monitors#3 CRT for monitors

#1 in AM LCD#1 in AM LCDpanelspanels

#3 Display#3 Displaydriver ICsdriver ICs

62

#1 in CD #1 in CD RecordableRecordable#5 In DVD, #1 in Europe#5 In DVD, #1 in Europe

Philips in StoragePhilips in Storage

20% market share in20% market share inoptical storage ICsoptical storage ICs#3 in Optical Modules#3 in Optical Modules

#4 in Optical Storage Data#4 in Optical Storage Data

63

# 3 Digital Set Top Boxes# 3 Digital Set Top Boxes((STBsSTBs))

Philips in Digital Video PlatformPhilips in Digital Video Platform

#3 in ICs for digital#3 in ICs for digitalvideovideo

#3 ICs for Digital CE#3 ICs for Digital CE(overall)(overall)#5 in DVD#5 in DVD

PlaatjePlaatje

64

Philips in ConnectivityPhilips in ConnectivityLeader in Leader in BluetoothBluetooth modules modules

#11 in Mobile phones#11 in Mobile phones

#1 in Mobile#1 in Mobiledisplaydisplay

#1 in RF ICs#1 in RF ICs#3 in #3 in baseband baseband ICsICs

65

15.715.711.511.5

Invested Capital TrendInvested Capital Trend€€ billion; Percent billion; Percent

100% =100% = 24.724.712.712.7

19971997 19981998 19991999 20002000

High GrowthHigh GrowthTechnologyTechnology

Other businessesOther businesses

6161

3939

43%43%

6868

5757

3232

4747

5353

66

High Growth TechnologyHigh Growth Technology2000, Excluding extraordinary items2000, Excluding extraordinary items

Philips:Philips:A high-growth technologyA high-growth technology

company with a strongcompany with a strongcash flowcash flow

77%77%

2323

100100

35%35%

66

High growthHigh growthtechnologytechnology

OtherOtherbusinessesbusinesses

TotalTotal

Earnings per shareEarnings per sharePercentPercent

Nominal revenue growthNominal revenue growthPercentPercent

67

Philips: a Technology CompanyPhilips: a Technology Company•• Research, Semiconductors, Components, and parts ofResearch, Semiconductors, Components, and parts of

Consumer Electronics are at the heart of the High GrowthConsumer Electronics are at the heart of the High GrowthTechnology CompanyTechnology Company

•• Lighting is a world leader and growth will come from betterLighting is a world leader and growth will come from betterperformance and technology driven innovationperformance and technology driven innovation

•• Medical Systems is a technology driven business withMedical Systems is a technology driven business withgrowth opportunities from our recent investmentsgrowth opportunities from our recent investments

•• DAP is a mix of brand businesses with some DAP is a mix of brand businesses with some importantimportanttechnologytechnology components (e.g., Shavers and Dental Care) components (e.g., Shavers and Dental Care)

… with a strong Brand and Cash Flow

68

Building the CompanyBuilding the Company

•• Continued focus on performance toContinued focus on performance tomaintain precious financial credibilitymaintain precious financial credibility

•• Flexible structures to support theFlexible structures to support thedevelopment of our businessesdevelopment of our businesses

•• Stimulating opportunities betweenStimulating opportunities betweenbusinessesbusinesses

69

Focus on PerformanceFocus on Performance

We will be highly criticalWe will be highly criticalof low growth, low returnof low growth, low return

businesses lackingbusinesses lackingmarket leadershipmarket leadership

70

Short Term IssuesShort Term Issues•• Overall CE profitability and focusOverall CE profitability and focus

–– PCCPCC–– Digital NetworksDigital Networks–– SpeechSpeech–– Specialty ProductsSpecialty Products

•• Components, as a consequence of Components, as a consequence of slowerslowergrowth in PCgrowth in PC and Telecom and Telecom marketsmarkets andandovercapacityovercapacity for Flat Panel Displays for Flat Panel Displays

71

Outlook 2001Outlook 2001Market DevelopmentsMarket Developmentsmay slow down Earningsmay slow down Earnings

•• Slow-down inSlow-down inworldwide economicworldwide economicactivity, in particularactivity, in particularthe USAthe USA

•• Temporary oversupplyTemporary oversupplyPC and TelecomPC and Telecommarkets, in the first halfmarkets, in the first halfof 2001of 2001

Our Actions consistent withOur Actions consistent withStrategyStrategy

•• Control Control Capex Capex on a level belowon a level belowfiscal year 2000fiscal year 2000

•• Continue to support high growthContinue to support high growthopportunities, also with acquisitionsopportunities, also with acquisitions

•• Improving operational efficiencyImproving operational efficiency

•• More attention to a closerMore attention to a closercooperation between businessescooperation between businesses

•• Further tightening business controlsFurther tightening business controls

72


New Group ObjectivesNew Group Objectives

•• Double digit growth inDouble digit growth inEarnings per ShareEarnings per Share

1996-20001996-2000 Medium TermMedium Term

•• Sales growth above 10%Sales growth above 10%on average per annumon average per annum



•• Income from Operations fromIncome from Operations from7.7% to 10% of sales7.7% to 10% of sales

•• 15% growth in Earnings per15% growth in Earnings perShare on average per annumShare on average per annum


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