Philips achieves 2013 financial goals, reports fourth-quarter comparable sales growth of 7%

Jan 28th, 2014
Philips reports fourth-quarter comparable sales growth of 7%; operational results up by 20%; 2013 financial targets achieved

Fourth-quarter highlights
- Comparable sales in growth geographies up 15%
- EBITA amounted to EUR 884 million, or 13.0% of sales, compared to a loss of EUR 50
million in Q4 2012
- EBITA excluding restructuring and other charges increased to EUR 915 million, or 13.5% of
sales, compared to EUR 765 million, or 11.3% of sales, in Q4 2012
- Net income amounted to EUR 412 million
- Free cash flow of EUR 608 million

Full-year highlights
- Full-year comparable sales increased 3% to EUR 23.3 billion
- Full-year EBITA increased to EUR 2.5 billion, or 10.5% of sales, compared to EUR 1.1 billion,
or 4.7% of sales, in 2012
- Return on invested capital was 15.3% for the year
- Proposal to increase dividend to EUR 0.80 per share

Frans van Houten, CEO:

“The fourth quarter of 2013 was another good quarter for Philips, despite the challenging economic environment. In the quarter, Lighting and Consumer Lifestyle both delivered strong comparable sales growth of 8%. At Healthcare, comparable sales increased by 4%, while order intake declined 1% related to the weak markets in USA and Europe. The operational profitability of all sectors improved substantially, driven by good sales growth, gross margin expansion of 2 percentage points and the productivity gains, all coming from the Accelerate! program, and despite currency headwinds.

We achieved the mid-term financial targets we had set in 2011, thanks to the hard work of our employees. We delivered a compound annual growth rate for comparable sales over the period 2012-2013 of 4.5%, compared to our target of 4-6%, and did so in a lower GDP growth environment than originally anticipated. Our reported EBITA as a percentage of sales was 10.5%, within our target range of 10-12%, which we achieved despite currency headwinds and changed pension accounting. We also significantly improved our return on invested capital to 15.3%, above the target range of 12-14%.

We are making excellent progress on our Accelerate! journey. We continue to invest in growth opportunities and the Philips brand. Our overhead cost reduction program has resulted in EUR 1 billion of total gross savings to date. We reduced our inventory as a percentage of sales by 260 basis points from 2011 to 2013. Through our Design for Excellence (DfX) program we remain focused on improving gross margins. These ongoing initiatives, as well as the launch of our new brand campaign and our focus on innovation, continue to make Philips a better and more competitive company. We received a record of over 100 design awards in 2013.

We introduced the EPIQ Ultrasound system, the Vereos digital PET/CT system and the IQon Spectral CT system, which we expect will have a positive effect on future orders for our health care business. Building on our consumer portfolio of locally relevant innovations, we experienced strong growth in China as well as in Europe, driven by higher demand for our home appliances, among which the air purifier and air fryer. As the leading professional lighting solutions and services provider, Philips won a 10-year contract to deliver and service an integrated digital lighting system with 13,000 connected LED fixtures and adaptive energy management controls for parking garages in Washington, DC. We also won a major order to renovate most of Buenos Aires' 125,000 street lights with the CityTouch connected LED system.

Achieving the 2013 financial targets was an important milestone and we have now set our sights on reaching our 2016 targets. We are confident in our ability to further improve our performance by continuing the strong focus on our Accelerate! transformation program. Looking at 2014, we remain cautious because of ongoing macro-economic uncertainties, currency headwinds and softer order intake in Q4 2013. Therefore, we expect that 2014 will be a modest step towards our 2016 targets, also taking into account restructuring to drive the new productivity targets and investments in additional growth initiatives."

Q4 financials: comparable sales and operational results improve across all sectors

Healthcare comparable sales grew by 4% year-on-year. Customer Services recorded high-single-digit growth, while Home Healthcare Solutions achieved mid-single-digit growth. Imaging Systems and Patient Care & Clinical Informatics recorded low-single-digit growth. In growth geographies, comparable sales showed double-digit growth year-on-year, with strong increases in China, Central & Eastern Europe, Latin America and Middle East & Turkey. Currency-comparable equipment order intake declined by 1% year-on-year, with Patient Care & Clinical
Informatics achieving low-single-digit growth, while Imaging Systems recorded a low-single-digit decline. EBITA margin excluding restructuring and acquisition-related charges increased by 100 basis points year-on-year to 19.0%.

Consumer Lifestyle comparable sales increased by 8%, with double-digit growth at Domestic Appliances and high single-digit growth at Health & Wellness, while Personal Care recorded mid-single-digit growth. In the growth geographies, comparable sales showed a strong double-digit increase, while mature geographies achieved low single-digit growth. EBITA margin excluding restructuring and acquisition-related charges increased to 13.4%, a year-on-year improvement of 2.1 percentage points.

Lighting comparable sales increased by 8%, led by double-digit growth at Lumileds and Automotive. Light Sources & Electronics and Professional Lighting Solutions achieved mid-single-digit growth, while Consumer Luminaires recorded a low-single-digit decline. LED-based sales grew by 48% and now represent 34% of total Lighting sales. In growth geographies, comparable sales showed a double-digit increase. EBITA margin excluding restructuring and
acquisition-related charges and other losses was 10.4%, a year-on-year improvement of 2.5 percentage points.

Philips has completed 7% of the EUR 1.5 billion share buy-back program since the start of the program in October 2013.

About Royal Philips:
Royal Philips (NYSE: PHG, AEX: PHIA) is a diversified health and well-being company, focused on improving people’s lives through meaningful innovation in the areas of Healthcare, Consumer Lifestyle and Lighting. Headquartered in the Netherlands, Philips posted 2013 sales of EUR 23.3 billion and employs approximately 115,000 employees with sales and services in more than 100 countries. The company is a leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as male shaving and grooming and oral healthcare. News from Philips is located at www.philips.com/newscenter.

Forward-looking statements

This document and the related oral presentation, including responses to questions following the presentation, 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. Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.

These factors include, but are not limited to, domestic and global economic and business conditions, developments within the euro zone, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2012 and the “Risk and uncertainties” section in our semi-annual financial report for the six months ended July 1, 2013.

Third-party market share data
Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

Use of non-GAAP Information
In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in our Annual Report 2012. Further information on non-GAAP measures can be found in our Annual Report 2012.

Use of fair-value measurements
In presenting the Philips Group’s financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices do not exist, we estimated the fair values using appropriate valuation models, and when observable market data are not available, we used unobservable inputs. They require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our 2012 financial statements. Independent valuations may have been obtained to support management’s determination of fair values.

All amounts in millions of euros unless otherwise stated; data included are unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2012, unless otherwise stated.

Contact:

Steve Klink - Philips Group Communications
+31-6-10888824
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