6-K 1 d383538d6k.htm FORM 6-K Form 6-K
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

July 23, 2012

 

 

KONINKLIJKE PHILIPS ELECTRONICS N.V.

(Exact name of registrant as specified in its charter)

Royal Philips Electronics

(Translation of registrant’s name into English)

 

 

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(7):  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No  x

Name and address of person authorized to receive notices

and communications from the Securities and Exchange Commission:

E.P. Coutinho

Koninklijke Philips Electronics N.V.

Amstelplein 2

1096 BC Amsterdam – The Netherlands

 

 

 


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This report comprises a copy of the following press releases:

 

 

“Q2 2012 Quarterly Report and Semi-annual Report”, dated July 23, 2012.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 23rd day of July 2012.

 

KONINKLIJKE PHILIPS ELECTRONICS N.V.
/s/ E.P. Coutinho
(General Secretary)


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Q2 2012 Quarterly report and Semi-annual report

Philips reports second-quarter comparable sales growth of 5% to EUR 5.9 billion; EBITA of EUR 450 million

 

 

Growth led by 7% growth at Healthcare and 6% growth at Lighting

 

 

Sales in growth geographies up 11% on a comparable basis, now representing 35% of total revenue

 

 

Reported EBITA of EUR 450 million, or 7.6% of sales

 

 

Net income of EUR 167 million

 

 

Overhead-reduction plan on track; cumulative savings now EUR 176 million

 

 

Distribution agreement signed for Lifestyle Entertainment in North America with Funai

Q2 financials: Strong growth at Healthcare, Lighting and the growth businesses in Consumer Lifestyle. Positive growth momentum improves operating margins.

Healthcare comparable sales grew by 7%, with a solid sales increase across all businesses and a 22% increase in growth geographies. Currency-comparable order intake increased by 4% year-on-year, with equipment order growth seen at both Imaging Systems and Patient Care & Clinical Informatics. Reported EBITA margin for the quarter was 13.8%.

Consumer Lifestyle sales increased by 3% on a comparable basis. High-single-digit growth in the combined growth businesses, i.e. Personal Care, Health & Wellness and Domestic Appliances, was partly offset by a decline at Lifestyle Entertainment. Reported EBITA margin for the quarter was 7.6% and included a one-time gain on the sale of the Speech Processing business.

Lighting comparable sales increased by 6%, led by double-digit sales growth at Light Sources & Electronics, as well as high-single-digit sales growth at Automotive. LED-based sales grew by 37% year-on-year and now account for 20% of total Lighting sales. Reported EBITA margin for the quarter was 4.6%.

We have completed 56% of our EUR 2 billion share buy-back program since the start of the program in July 2011.

Gaining further traction with Accelerate!

Our multi-year change and performance improvement program Accelerate! is in its second year and we continue to make good progress. We see employees across the company embracing the transformation program, which is positively changing our company culture to become agile and entrepreneurial. We now have many End2End pilot transformation projects, which currently cover over 10% of revenue, forming the basis for further rollout across the rest of the company. The implementation of our granular performance management approach is resulting in accelerated growth and an improved bottom-line.

The actions to deliver on our overhead cost-reduction program are on track. Incremental savings amounted to EUR 176 million in the first half of 2012, and more than 50% of the total TV stranded costs have been taken out. Cumulative savings by the end of 2012 are expected to be approximately EUR 400 million.


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CEO quote:

The improved performance in the second quarter of 2012 is encouraging proof that our Accelerate! transformation program, and the relentless focus on execution, are enabling us to continue on the path to achieve our 2013 mid-term financial targets.

The initiatives to stimulate growth show promising results, especially in the light of the weaker economic situation. Healthcare sales are growing well at 7%, and order intake showed solid growth, whereby a decline in Europe was more than offset by increases in the rest of the world. The growth businesses in Consumer Lifestyle again performed solidly. At Lighting, LED-based sales showed strong growth momentum. Overall, the cost-saving initiatives are on track, resulting in improved operational performance across the group compared to the previous year.

We are considering various business models for Lifestyle Entertainment to drive more value. As a result, we are happy to announce a distribution agreement for Lifestyle Entertainment in North America and the sale of the Speech Processing business.

There is no denying that the global economy is weaker now than it was just three months ago, especially in Europe which accounts for approximately 25% of our revenue. We continue to take actions to mitigate the risks from the increased economic headwinds globally, and we remain confident in our ability to further improve our performance.

Frans van Houten, CEO of Royal Philips Electronics

Please refer to page 16 of this press release for more information about forward-looking statements, third-party market share data, use of non-GAAP information and use of fair-value measurements.

 

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Philips Group

 

Net income

in millions of euros unless otherwise stated

 

     Q2     Q2  
     2011     2012  

Sales

     5,216        5,892   

EBITA

     371        450   

as a % of sales

     7.1        7.6   

EBIT

     (1,123     338   

as a % of sales

     (21.5     5.7   

Financial income and expenses

     (74     (79

Income taxes

     (47     (89

Results investments in associates

     (4     (10

Income (loss) from continuing operations

     (1,248     160   

Discontinued operations

     (97     7   

Net income (loss)

     (1,345     167   

Net income (loss) - shareholders per common share (in euros) - basic

     (1.39     0.18   

Sales by sector

in millions of euros unless otherwise stated

 

     Q2      Q2            % change  
     2011      2012      nominal     comparable  

Healthcare

     2,080         2,413         16        7   

Consumer

          

Lifestyle

     1,247         1,356         9        3   

Lighting

     1,777         2,026         14        6   

IG&S

     112         97         (13     (13
     

 

 

    

 

 

   

 

 

 

Philips Group

     5,216         5,892         13        5   

Sales per geographic cluster

in millions of euros unless otherwise stated

 

     Q21)      Q2            % change  
     2011      2012      nominal     comparable  

Western Europe

     1,456         1,455         (0     (4

North America

     1,627         1,935         19        7   

Other mature geographies

     404         456         13        2   
     

 

 

    

 

 

   

 

 

 

Total mature geographies

     3,487         3,846         10        2   

Growth geographies

     1,729         2,046         18        11   
     

 

 

    

 

 

   

 

 

 

Philips Group

     5,216         5,892         13        5   

 

1) 

Revised to reflect an adjusted market cluster allocation

Net income

 

 

Net income of EUR 167 million was EUR 1,512 million higher year-on-year, largely due to goodwill and intangible-asset impairments of EUR 1,385 million in Q2 2011. Excluding impairments, net income was EUR 127 million higher year-on-year, reflecting higher operating earnings and the loss on discontinued operations recorded in Q2 2011.

 

 

EBITA increased by EUR 79 million year-on-year to 7.6% of sales, driven by higher earnings at Healthcare and Consumer Lifestyle, partly offset by higher cost at Innovation, Group & Services and lower EBITA at Lighting.

 

 

EBITA included acquisition and restructuring-related charges, the gain on the divestment of the Speech Processing activities in Consumer Lifestyle and a one- time gain of prior service cost related to a medical retiree benefit plan. Excluding these items, EBITA amounted to 8.6% of sales.

 

 

Tax charges were EUR 42 million higher than in Q2 2011, mainly due to higher taxable earnings.

 

 

In Q2, after-tax income from discontinued operations, which represents the results of the Television business, was a gain of EUR 7 million, compared to a loss of EUR 97 million in Q2 2011. The EUR 7 million gain came from lower costs leading to an improved deal result.

Sales per sector

 

 

Group sales amounted to EUR 5,892 million, an increase of 5% on a comparable basis. Group nominal sales increased by 13%, including a 7% positive currency effect.

 

 

Healthcare sales improved by 7% on a comparable basis, with solid sales increases in all businesses, notably double-digit growth at Patient Care & Clinical Informatics, high-single-digit growth at Imaging Systems, and mid-single-digit growth at Home Healthcare Solutions.

 

 

Consumer Lifestyle comparable sales grew by 3% year- on-year, driven by strong double-digit growth at Health & Wellness and strong single-digit growth at Domestic Appliances, partly offset by a sales decline at Lifestyle Entertainment.

 

 

Lighting sales grew by 6% on a comparable basis, led by double-digit growth at Light Sources & Electronics and high-single-digit growth at Automotive.

Sales per geographic cluster

 

 

Comparable sales in the mature markets grew by 2% compared to Q2 2011, driven by Healthcare and Lighting, while Consumer Lifestyle sales declined.

 

 

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EBITA

in millions of euros

 

     Q2
2011
    Q2
2012
 

Healthcare

     276        333   

Consumer Lifestyle

     26        103   

Lighting

     101        93   

Innovation, Group & Services

     (32     (79
    

 

 

 

Philips Group

     371        450   

EBITA

as a % of sales

 

     Q2
2011
    Q2
2012
 

Healthcare

     13.3        13.8   

Consumer Lifestyle

     2.1        7.6   

Lighting

     5.7        4.6   

Innovation, Group & Services

     (28.6     (81.4
    

 

 

 

Philips Group

     7.1        7.6   

Restructuring and acquisition-related charges

in millions of euros

 

     Q2
2011
    Q2
2012
 

Healthcare

     1        (8

Consumer Lifestyle

     (13     (13

Lighting

     (14     (38

Innovation, Group & Services

     2        (40
    

 

 

 

Philips Group

     (24     (99

EBIT

in millions of euros unless otherwise stated

 

     Q2
2011
    Q2
2012
 

Healthcare

     (611     284   

Consumer Lifestyle

     (9     86   

Lighting

     (470     49   

Innovation, Group & Services

     (33     (81
    

 

 

 

Philips Group

     (1,123     338   

as a % of sales

     (21.5     5.7   
 

Growth geographies showed 11% comparable growth, predominantly driven by Healthcare and Consumer Lifestyle.

Earnings

 

 

EBITA amounted to EUR 450 million, an increase of EUR 79 million compared to Q2 2011, as higher earnings at Consumer Lifestyle and Healthcare were partly offset by higher costs at IG&S and lower EBITA at Lighting. EBITA included restructuring and acquisition-related charges of EUR 99 million, EUR 75 million higher than in Q2 2011, as well as the impact of the divestment of the Speech Processing activities in Consumer Lifestyle and a one-time gain of prior service cost related to a medical retiree benefit plan. Excluding these items, EBITA amounted to EUR 504 million, or 8.6% of sales.

 

 

Healthcare EBITA increased by EUR 57 million year-on-year, with improvement in earnings in most businesses, particularly Patient Care & Clinical Informatics and Customer Services. Restructuring and acquisition-related charges were EUR 9 million higher than in Q2 2011.

 

 

Consumer Lifestyle EBITA increased by EUR 77 million year-on-year, with improved earnings seen in all businesses. The year-on-year improvement included the EUR 20 million gain on the Speech Processing divestment and EUR 9 million lower stranded costs from the Television business. Restructuring and acquisition-related charges were in line with Q2 2011.

 

 

Lighting EBITA decreased by EUR 8 million year-on-year, as the increases driven by sales growth and improvements in the cost structure related to the Accelerate! program were more than offset by EUR 24 million higher restructuring charges year-on-year.

 

 

IG&S EBITA decreased by EUR 47 million to a net cost of EUR 79 million, mainly due to investments related to the Accelerate! program and higher restructuring costs. IG&S EBITA included a EUR 25 million one-time gain of prior service cost related to a medical retiree benefit plan.

 

 

4   Q2 2012 Quarterly report and Semi-annual report


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Financial income and expenses

in millions of euros

 

     Q2
2011
    Q2
2012
 

Net interest expenses

     (48     (65

NXP arrangement

     4        (2

Other

     (30     (12
    

 

 

 
     (74     (79

 

Financial income and expenses

 

 

Financial income and expenses amounted to a net expense of EUR 79 million, EUR 5 million higher than in Q2 2011. Last year included a fair-value gain on the option related to NXP and a negative value adjustment in respect of available-for-sale financial assets.

 

 

Cash balance

in millions of euros

 

     Q2
2011
    Q2
2012
 

Beginning cash balance

     4,772        4,225   

Free cash flow

     (180     (211

Net cash flow from operating activities

     63 1)      52   

Net capital expenditures

     (243 )1)      (263

Acquisitions and divestments of businesses

     (136     41   

Other cash flow from investing activities

     35        (23

Treasury shares transactions

     45        (288

Dividend paid

     (259     (256

Changes in debt/other

     (839     (276

Net cash flow discontinued operations

     (178     (78
    

 

 

 

Ending balance

     3,260        3,134   

 

1)

Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment

Cash balance

 

 

The Group cash balance decreased during the quarter to EUR 3,134 million, mainly due to a free cash outflow of EUR 211 million, the use of EUR 288 million in treasury share transactions largely for our buy-back program, EUR 256 million of cash dividend, as well as a net decrease of EUR 276 million mainly related to debt redemption.

 

 

In Q2 2011, the cash balance decreased to EUR 3,260 million, largely due to a EUR 839 million redemption of debt, EUR 259 million of cash dividend, a negative free cash flow of EUR 180 million, as well as EUR 178 million related to discontinued operations and EUR 136 million of cash used for acquisitions.

 

 

Cash flows from operating activities

in millions of euros

 

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1)

Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment

Cash flows from operating activities

 

 

Operating activities resulted in a cash inflow of EUR 52 million, compared to an inflow of EUR 63 million in Q2 2011. The Q2 2012 figure includes a net increase in working capital requirements of EUR 366 million, compared to EUR 213 million in Q1 2012. The higher working capital outflow was largely offset by higher earnings, lower non-current liabilities and increased provisions.

 

 

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Gross capital expenditures1)

in millions of euros

 

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1)

Capital expenditures on property, plant and equipment only

2)

Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment

Gross capital expenditure

 

 

Gross capital expenditures on property, plant and equipment were EUR 11 million higher than in Q2 2011, mainly due to higher investments at Lighting and Consumer Lifestyle.

 

 

Inventories

as a % of moving annual total sales

 

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Inventories

 

 

Inventories as a percentage of sales amounted to 16.8%, broadly in line with Q1 2012. Inventory value at the end of Q2 2012 was EUR 4.0 billion, an increase of EUR 154 million in the quarter, attributable to Healthcare and Lighting.

 

 

Compared to Q2 2011, inventories as a % of sales were stable.

 

 

Net debt and group equity

in billions of euros

 

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Net debt and group equity

 

 

At the end of Q2 2012, Philips had a net debt position of EUR 1.8 billion, compared to EUR 156 million at the end of Q2 2011. During the quarter, the net debt position increased by EUR 979 million, mainly attributable to treasury stock transactions and the payment of the annual dividend and negative free cash flow in Q2 2012.

 

 

Group equity decreased by EUR 97 million in the quarter to EUR 12.2 billion. The decrease was largely a result of treasury share transactions and the payment of the annual dividend, offset partially by currency effects as well as net income earned during the period.

 

 

6   Q2 2012 Quarterly report and Semi-annual report


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Number of employees

in FTEs

 

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1)

Number of employees excludes discontinued operations. Discontinued operations, comprising the Television business, employed at end of Q2 2011 3,506.

2)

Adjusted to reflect a change of employees reported in the Healthcare sector

Employees

 

 

The number of employees decreased by 207 in the quarter. The increase at Consumer Lifestyle mainly related to acquisitions (Preethi and Povos) and was more than offset by higher restructuring activities at Lighting.

 

 

Compared to Q2 2011, the number of employees increased by 569. This increase includes 3,068 employees from acquisitions and a reduction of 410 employees from divestments. Excluding acquisitions and divestments, the number of employees decreased by 2,089, mainly due to the company’s overhead reduction program.

 

 

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Healthcare

 

Key data

in millions of euros unless otherwise stated

 

     Q2
2011
    Q2
2012
 

Sales

     2,080        2,413   

Sales growth

    

% nominal

     1        16   

% comparable

     8        7   

EBITA

     276        333   

as a % of sales

     13.3        13.8   

EBIT

     (611     284   

as a % of sales

     (29.4     11.8   

Net operating capital (NOC)

     7,534        8,542   

Number of employees (FTEs)

     37,351 1)      37,887   

 

1)

Adjusted to reflect a change of reported employees

Sales

in millions of euros

 

LOGO

EBITA

 

LOGO

Business highlights

 

 

Philips opened its imaging systems manufacturing facilities in Pune, India and Suzhou, China. These sites will further enhance our innovation capabilities in growth geographies, and drive competitiveness of our product offering in key growth market segments.

 

 

Philips continues to win new business by joining forces with three leading institutes for medical imaging technology research in Russia and by providing customized clinical imaging solutions and consulting services in Turkey and Brazil, fueling growth in these important countries.

 

 

Philips’ IntelliSpace Picture Archiving & Communication System solution continues to gain traction in the market: six NHS trusts in the UK, representing ten acute-care and 18 community hospitals, selected this solution, which will be used to support over a million new studies annually.

 

 

To strengthen its position in the obstructive sleep apnea market, Philips introduced the Amara full-face mask. Amara sets the standard for innovation in the market by being physically smaller and lighter than other traditional full-face masks.

 

 

Philips continues to transform healthcare with its remote monitoring solutions. By playing an instrumental role in the US Federal Communications Commission decision on Medical Body Area Networks (MBANs), Philips expanded the market for patient monitoring from the hospital to the home.

Financial performance

 

 

Currency-comparable equipment order intake grew 4% year-on-year. Equipment order growth was seen at both Imaging Systems and Patient Care & Clinical Informatics. Equipment orders in North American markets were 3% lower than in Q2 2011, while orders in Western Europe declined by 6%. Equipment orders in growth geographies were 13% higher, while equipment orders in Japan showed strong double-digit growth.

 

 

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Comparable sales were 7% higher year-on-year, with solid sales increases in all businesses, notably double-digit growth at Patient Care & Clinical Informatics, high-single-digit growth at Imaging Systems, and mid-single-digit growth at Home Healthcare Solutions. From a regional perspective, comparable sales in mature markets grew 4% year-on-year, with North America growing by 7% and Western Europe declining by 1%. Growth-geography sales grew 22% year-on-year.

 

 

EBITA increased by EUR 57 million year-on-year to EUR 333 million, or 13.8% of sales. EBITA improvement was driven by higher sales volumes and increased operational leverage. Excluding restructuring and acquisition-related charges, EBITA amounted to EUR 341 million, or 14.1% of sales, compared to EUR 275 million, or 13.2% of sales, in Q2 2011.

 

 

Net operating capital increased by EUR 1.0 billion to EUR 8.5 billion, mainly due to currency effects.

 

 

Compared to Q2 2011, the number of employees increased by 536, mainly driven by the build-up of sales and service teams during the second half of 2011.

Miscellaneous

 

 

Restructuring and acquisition-related charges in Q3 2012 are expected to total approximately EUR 15 million.

 

 

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Consumer Lifestyle

 

Key data

in millions of euros unless otherwise stated

 

     Q2     Q2  
     2011     2012  

Sales

     1,247        1,356   

Sales growth

    

% nominal

     (2     9   

% comparable

     (0     3   

EBITA

     26        103   

as a % of sales

     2.1        7.6   

EBIT

     (9     86   

as a % of sales

     (0.7     6.3   

Net operating capital (NOC)

     1,428        1,546   

Number of employees (FTEs)

     17,026        19,277   

Sales

in millions of euros

 

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EBITA

 

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Business highlights

 

 

Showcasing its position as the most recommended brand by mothers worldwide, Philips AVENT launched its innovative new Natural infant-feeding breast pump and bottle range in the UK and US, with the global launch taking place in September.

 

 

Philips launched the Airfryer in 2010 and has since rapidly expanded into more than 60 countries worldwide. Sales of the innovative kitchen appliance, which creates meals with up to 80% less fat, have significantly exceeded projected volumes. The Airfryer is now also available in India.

 

 

Philips recently sold its millionth garment steamer in Asia, having launched its first product less than three years ago. Philips is the clear market leader in the rapidly growing Chinese market.

 

 

Philips launched the PowerPro bagless vacuum cleaner, which uses innovative technology to deliver exceptional dust pick-up performance on carpet, at levels 40% higher than the top-selling bagless vacuum cleaner in Europe.

 

 

Philips has closed the divestment of its Speech Processing business to Invest AG.

 

 

Philips has signed a distribution agreement with Funai for its Lifestyle Entertainment business in North America, effective from September 1, 2012. This is in addition to Funai’s existing Television and Video brand licensing agreement in the region.

Financial performance

 

 

Sales increased 9% nominally year-on-year. On a comparable basis sales increased 3%, driven by high-single-digit growth in the combined growth businesses, i.e. Personal Care, Health & Wellness and Domestic Appliances, partly offset by a decline at Lifestyle Entertainment. Excluding Licenses and Lifestyle Entertainment, comparable sales increased by 8% year- on-year.

 

 

Double-digit growth in Asia Pacific and mid-single-digit growth in North America were partly offset by a decline in Western Europe.

 

 

EBITA included EUR 9 million of net costs formerly reported as part of the Television business in Consumer Lifestyle (EUR 18 million in Q2 2011).

 

 

Excluding restructuring and acquisition-related charges of EUR 13 million in both Q2 2011 and Q2 2012 and the EUR 20 million gain on the Speech Processing business transaction in Q2 2012, EBITA margin increased from 3.1% to 7.1%. EBITA improvement was driven by higher earnings across all businesses and by lower net costs formerly reported as part of the Television business.

 

 

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Working capital as a percentage of the last twelve months’ sales improved from 6% to 2%, largely driven by lower accounts receivable related to the former Television business in Consumer Lifestyle. Net operating capital increased by EUR 118 million, mainly due to the consolidation of the Povos acquisition offsetting the working capital improvement.

 

 

The number of employees increased by 2,251 year-on-year, largely attributable to the acquisitions of Preethi and Povos.

Miscellaneous

 

 

Restructuring and acquisition-related charges in Q3 2012 are expected to total approximately EUR 15 million.

 

 

Q2 2012 Quarterly report and Semi-annual report   11


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Lighting

 

Key data

in millions of euros unless otherwise stated

 

     Q2     Q2  
     2011     2012  

Sales

     1,777        2,026   

Sales growth

    

% nominal

     (4     14   

% comparable

     4        6   

EBITA

     101        93   

as a % of sales

     5.7        4.6   

EBIT

     (470     49   

as a % of sales

     (26.4     2.4   

Net operating capital (NOC)

     5,021        5,343   

Number of employees (FTEs)

     54,728        52,749   

Sales

in millions of euros

 

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EBITA

 

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Business highlights

 

 

The Belgian city of Mechelen selected Philips to renovate its entire city with Philips LED LunaVision, a custom-made design luminaire that offers significant energy savings, reduces maintenance costs and improves safety.

 

 

Philips signed an agreement with Optogan, a leading Russian company in LED solutions, to set up a joint venture that will provide an inroad into the fast- growing LED road-lighting market in Russia.

 

 

Philips was selected by the Empire State Building in New York City to create a state-of-the-art dynamic lighting system that changes the building’s mast colors in real- time.

 

 

Philips will deliver the largest-ever solar road-lighting installation, 1,050 pieces, in Nanyang, China. In addition, Philips will provide lighting products for over 800 new SINOPEC and about 80 Shell petrol stations in China.

 

 

In Mexico, Philips was chosen by Alsea to illuminate, with LED lighting solutions, the interior of approximately 1,200 outlets of brands such as Starbucks, Domino’s Pizza, PF Changs, and Burger King, enhancing the ambiance.

Financial performance

 

 

Comparable sales increased by 6% year-on-year, led by double-digit sales growth at Light Sources & Electronics and high-single-digit sales growth at Automotive.

 

 

From a geographical perspective, sales (excluding Lumileds) in the growth geographies increased by 13%, while high-single-digit growth was recorded in North America. Sales in Europe were slightly below the level of Q2 2011.

 

 

LED-based sales grew 37% compared to Q2 2011, and now represent 20% of total Lighting sales.

 

 

EBITA, excluding restructuring and acquisition-related charges of EUR 38 million (Q2 2011: EUR 14 million), amounted to EUR 131 million, or 6.5% of sales. The year-on-year EBITA increase was driven by sales growth and improvements in our cost structure delivered by the Accelerate! program.

 

 

Inventories as a percentage of sales improved by 40 basis points year-on-year. The increase in net operating capital is due to currency impact and the consolidation of Indal in Q1 2012.

 

 

The number of employees compared to Q2 2011 decreased by 1,979, which comprises of an increase of 959 employees due to the acquisition of Indal and a reduction of 2,938 employees. The reduction was related to overhead cost reduction initiatives as well as the rationalization of the industrial footprint.

 

 

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Miscellaneous

 

 

Philips signed its 200th license agreement under the Philips LED Luminaire and Retrofit Bulb Licensing Program with the German company Paulmann. This unique program will help accelerate the adoption of LED solutions and foster industry growth.

 

 

Restructuring and acquisition-related charges in Q3 2012 are expected to total around EUR 70 million.

 

 

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Innovation, Group & Services

 

Key data

in millions of euros unless otherwise stated

 

     Q2     Q2  
     2011     2012  

Sales

     112        97   

Sales growth

    

% nominal

     (27     (13

% comparable

     (7     (13

EBITA Group Innovation

     (6     (33

EBITA IP Royalties

     50        35   

EBITA Group and Regional Costs

     (29     (28

EBITA Accelerate! investment

     —          (34

EBITA Pensions

     (12     31   

EBITA Service Units and Other

     (35     (50
    

 

 

 

EBITA

     (32     (79

EBIT

     (33     (81

Net operating capital (NOC)

     (2,681 )1)      (3,900

Number of employees (FTEs)

     12,128        11,888   

 

1) 

Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale

Sales

in millions of euros

 

LOGO

EBITA

in millions of euros

 

LOGO

Business highlights

 

 

As a leading provider of solutions for image-guided intervention and therapies, Philips has initiated a research consortium with the University Medical Center Utrecht, Utrecht University, and Eindhoven University of Technology, all internationally renowned players in image-guided interventions, to bring future therapies, such as new minimally invasive treatments based on MR-HIFU (Magnetic Resonance High-Intensity Focused Ultrasound), to patients faster.

 

 

Building on its expertise in LED lighting applications, Philips Research is successfully testing and validating new LED-based retail lighting concepts, designed to enhance the appearance of fashion merchandise in shops, at multiple customer locations.

 

 

In line with its policy of Open Innovation, Philips Research and the Dutch Technology Foundation STW have started a five-year partnership program in the area of advanced sustainable lighting solutions. The objective is to stimulate LED research at Dutch universities in the area of LED materials, sustainable production and lighting applications, and to facilitate the knowledge transfer to Philips for subsequent commercialization.

Financial performance

 

 

Sales decreased from EUR 112 million in Q2 2011 to EUR 97 million in Q2 2012, mainly due to lower license income.

 

 

EBITA amounted to a net cost of EUR 79 million, an increase of EUR 47 million year-on-year, mainly due to investments related to the Accelerate! program and higher restructuring costs. Excluding the Q2 2012 restructuring costs of EUR 40 million (EUR 2 million accrual release in Q2 2011) and the one-time gain of prior service cost related to a medical retiree benefit plan in Q2 2012, EBITA amounted to a net cost of EUR 64 million, compared to EUR 34 million in the prior year.

 

 

EBITA in Pensions was EUR 43 million higher than in Q2 2011, mainly due to a one-time gain of prior service cost related to a medical retiree benefit plan of EUR 25 million.

 

 

Service Units and Other EBITA includes EUR 9 million (EUR 21 million in Q2 2011) of net costs formerly

reported as part of the Television business in Consumer Lifestyle, as well as EUR 28 million of

additional restructuring charges compared to Q2 2011.

Excluding both these items, Service Units and Other EBITA was EUR 5 million better than in Q2 2011.

 

 

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Net operating capital decreased by EUR 1.2 billion year-on-year, mainly due to an increase in net pension liabilities in Q4 2011 as well as a decrease in the value of currency hedges held at Group level.

Miscellaneous

 

 

Restructuring charges in Q3 2012 are expected to total approximately EUR 15 million.

 

 

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Forward-looking statements

 

Forward-looking statements

This document contains 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, in particular the sector sections “Miscellaneous”. Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. Forward-looking statements can be identified generally as those containing words such as “anticipates”, assumes”, “believes”, “estimates”, “expects”, “should”, “will likely result”, “forecast”, “outlook”, “projects”, “may” or similar expressions. 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, 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 2011 and the “Risk and uncertainties” section in our semi-annual financial report for the six months ended July 1, 2012.

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 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’s 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 this document. Further information on non-GAAP measures can be found in our Annual Report 2011.

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 or observable market data do not exist, we estimated the fair values using appropriate valuation models and 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 2011 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 IFRS, unless otherwise stated. This document comprises regulated information within the meaning of the Dutch Financial Markets Supervision Act ‘Wet op het Financieel Toezicht’.

 

 

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Semi-annual financial report

Introduction

 

LOGO

 

This report contains the semi-annual financial report of Koninklijke Philips Electronics N.V. (‘the Company’), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (the Group) are described in note 4, Segment information.

The semi-annual financial report for the six months ended July 1, 2012 consists of the condensed consolidated semi-annual financial statements, the semi-annual management report and responsibility statement by the Company’s Board of Management. The information in this semi-annual financial report is unaudited.

The condensed consolidated semi-annual financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company’s consolidated IFRS financial statements for the year ended December 31, 2011.

The Board of Management of the Company hereby declares that to the best of their knowledge, the semi-annual financial statements, which have been prepared in

accordance with the applicable financial reporting standards for interim financial reporting, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and the semi-annual management report gives a fair review of the information required pursuant to section 5:25d(8)/(9) of the Dutch Financial Markets Supervision Act (Wet op het Financieel toezicht).

Amsterdam, July 23, 2012

Board of Management

 

Frans van Houten    Ron Wirahadiraksa
Pieter Nota   
 

 

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Management report

 

The 1st six months of 2012

 

 

Group sales for the first half of the year ended at EUR 11.5 billion, EUR 1.0 billion above the 2011 level.

 

 

On a comparable basis, sales grew 5%, with a double-digit sales increase in growth geographies and a low-single-digit decline in European markets.

 

 

EBITA increased EUR 193 million year-on-year, with higher earnings at Consumer Lifestyle and Healthcare.

 

 

Net income of EUR 416 million was EUR 1.6 billion higher than in the same period last year, largely as a result of the EUR 1.4 billion impairment charges in Q2 2011, as well as a lower loss from discontinued operations. Net income reflected the impact of one-time gains related to the Senseo transaction and the divestment of the Speech Processing activities.

Net income

in millions of euros unless otherwise stated

 

     January to June  
     2011     2012  

Sales

     10,473        11,500   

EBITA

     809        1,002   

as a % of sales

     7.7        8.7   

EBIT

     (804     776   

as a % of sales

     (7.7     6.7   

Financial income and expenses

     (76     (133

Income taxes

     (140     (185

Results investments in associates

     2        (16

Income (loss) from continuing operations

     (1,018     442   

Discontinued operations

     (189     (26

Net income (loss)

     (1,207     416   

Net income (loss) - shareholders per common share (in euros) - basic

     (1.26     0.45   

Performance of the Group

 

 

Group sales, at EUR 11.5 billion, were EUR 1.0 billion above the level of the first half of 2011, with higher sales across all sectors, especially at Healthcare and Lighting. Adjusted for currency impacts and portfolio changes, sales were 5% above last year’s level, with strong single-digit growth at Healthcare and moderate growth at Lighting.

 

 

Group EBITA improved by EUR 193 million compared to the first half of 2011, largely driven by higher sales and operational leverage at Healthcare and improved earnings at Consumer Lifestyle, while earnings at Lighting were lower year-on-year. EBITA improvements were seen across all Consumer Lifestyle businesses and included the gain from the Senseo transaction in Q1 2012 and the gain on the sale of the Speech Processing activities to Invest AG in Q2 2012.

 

 

Net income was EUR 1.6 billion higher than in the first half of 2011, mainly as a result of the EUR 1.4 billion impairment charge in Q2 2011, the one-time gains related to the Senseo transaction and the divestment of the Speech Processing activities, as well as a lower loss from discontinued operations.

 

 

Cash flow from operating activities came to EUR 383 million, an increase of EUR 813 million compared to the first half of 2011. This increase was a result of lower working capital requirements, mainly attributable to vendor payments and lower inventory level, as well as higher provisions.

 

 

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Sales by sector

in millions of euros unless otherwise stated

 

     January to June      % change  
     2011      2012      nominal     comparable  

Healthcare

     4,051         4,622         14        8   

Consumer Lifestyle

     2,496         2,642         6        1   

Lighting

     3,680         4,041         10        4   

IG&S

     246         195         (21     (9
     

 

 

    

 

 

   

 

 

 

Philips Group

     10,473         11,500         10        5   

EBITA

in millions of euros

 

     January to June  
     2011     2012  

Healthcare

     475        558   

Consumer Lifestyle

     105        362   

Lighting

     294        154   

Innovation, Group & Services

     (65     (72
    

 

 

 

Philips Group

     809        1,002   

EBITA

as a % of sales

 

     January to June  
     2011      2012  

Healthcare

     11.7         12.1   

Consumer Lifestyle

     4.2         13.7   

Lighting

     8.0         3.8   

Innovation, Group & Services

     —           —     
     

 

 

 

Philips Group

     7.7         8.7   

Philips sectors

Healthcare

 

 

Equipment order intake at Healthcare increased 5% compared to the first half of 2011, with strong double- digit growth at Patient Care & Clinical Informatics and low-single-digit growth at Imaging Systems. In North America, equipment orders were flat year-on-year, while total mature markets showed low-single-digit growth. Growth geographies reported double-digit growth.

 

 

First-half sales at Healthcare amounted to EUR 4,622 millon, a nominal increase of 14%. Excluding currency effects and portfolio changes, comparable sales increased by 8% year-on-year, with mid to high-single- digit growth in all businesses. From a regional perspective, comparable sales in mature markets grew by 4%, with North America growing at 5%. Growth geographies’ sales growth was 24%, with notably improved sales at Patient Care & Clinical Informatics and Imaging Systems.

 

 

EBITA amounted to EUR 558 million, or 12.1% of sales, EUR 83 million higher than in the first half of 2011. Improvements were mainly driven by higher sales volume and increased operational leverage. EBITA included restructuring and acquisition-related charges of EUR 17 million in the first half of 2012, compared to an accrual release of EUR 3 million in the first half of 2011.

Consumer Lifestyle

 

 

Sales amounted to EUR 2,642 million, a nominal increase of 6% compared to the first half of 2011, or 1% on a comparable basis. Strong double-digit growth at Health & Wellness and mid-single-digit growth at Personal Care and Domestic Appliances were tempered by a sales decline at Lifestyle Entertainment.

 

 

EBITA increased EUR 257 million compared to the first half of 2011, reflecting the net EUR 180 million gain from the Senseo and Speech Processing transactions and higher earnings across all businesses. Restructuring and acquisition-related charges of EUR 26 million in the first half of 2012 were in line with the same period last year.

Lighting

 

 

Sales in the first half of 2012 amounted to EUR 4,041 million, an increase of 4% on a comparable basis. Strong mid-single-digit growth in growth geographies was tempered by low-single-digit growth in mature geographies.

 

 

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EBITA decreased by EUR 140 million compared to the first half of 2011, mainly due to gross margin pressures and operational issues in the Lumileds and Consumer Luminaires businesses. Earnings included restructuring and acquisition-related charges of EUR 62 million and a EUR 25 million one-time loss on a sale of assets, compared to EUR 19 million of restructuring and acquisition-related charges in the first half of 2011.

Innovation, Group & Services

 

 

EBITA amounted to a net cost of EUR 72 million, a decrease of EUR 7 million year-on-year, as investments related to the Accelerate! program and lower license revenues were partially offset by a EUR 37 million gain on the High Tech Campus real estate transaction and a EUR 25 million one-time gain of prior service cost related to a medical retiree benefit plan.

Risks and uncertainties

In our Annual Report 2011 we extensively described certain risk categories and risk factors which could have a material adverse effect on our financial position and results. Those risk categories and risk factors are deemed incorporated and repeated in this report by reference.

Additional risks not known to us, or currently believed not to be material, could later turn out to have a material impact on our businesses, objectives, revenues, income, assets, liquidity or capital resources.

 

 

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Consolidated statements of income

all amounts in millions of euros unless otherwise stated

 

           2nd quarter     January to June  
     2011     2012     2011     2012  

Sales

     5,216        5,892        10,473        11,500   

Cost of sales1)

     (3,170     (3,641     (6,315     (7,135
    

 

 

   

 

 

   

 

 

 

Gross margin

     2,046        2,251        4,158        4,365   

Selling expenses1)

     (1,233     (1,355     (2,440     (2,580

General and administrative expenses

     (221     (138     (430     (326

Research and development expenses

     (382     (437     (772     (880

Impairment of goodwill

     (1,355     —          (1,355     —     

Other business income

     38        38        59        253   

Other business expenses

     (16     (21     (24     (56
    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1,123     338        (804     776   

Financial income

     15        12        106        49   

Financial expenses

     (89     (91     (182     (182
    

 

 

   

 

 

   

 

 

 

Income (loss) before taxes

     (1,197     259        (880     643   

Income tax expense

     (47     (89     (140     (185
    

 

 

   

 

 

   

 

 

 

Income (loss) after taxes

     (1,244     170        (1,020     458   

Results relating to investments in associates

     (4     (10     2        (16
    

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     (1,248     160        (1,018     442   

Discontinued operations - net of income tax

     (97     7        (189     (26
    

 

 

   

 

 

   

 

 

 

Net income (loss)

     (1,345     167        (1,207     416   

Attribution of net income for the period

        

Net income (loss) attributable to shareholders

     (1,344     167        (1,207     415   

Net income (loss) attributable to non-controlling interests

     (1     —          —          1   

Weighted average number of common shares outstanding

        

(after deduction of treasury shares) during the period (in thousands):

        

- basic

     964,916 2)      922,589        956,337 2)      922,764   

- diluted

     971,291 2)      926,695        963,680 2)      926,296   

Net income (loss) attributable to shareholders per common share in euros:

        

- basic

     (1.39     0.18        (1.26     0.45   

- diluted3)

     (1.39     0.18        (1.26     0.45   

Ratios

        

Gross margin as a % of sales

     39.2        38.2        39.7        38.0   

Selling expenses as a % of sales

     (23.6     (23.0     (23.3     (22.4

G&A expenses as a % of sales

     (4.2     (2.3     (4.1     (2.8

R&D expenses as a % of sales

     (7.3     (7.4     (7.4     (7.7

EBIT

     (1,123     338        (804     776   

as a % of sales

     (21.5     5.7        (7.7     6.7   

EBITA

     371        450        809        1,002   

as a % of sales

     7.1        7.6        7.7        8.7   

 

1)

Two accounting policy changes have been implemented as of 2012. Warranty costs, previously reported in Selling expenses on the income statement, have been reclassified to Cost of sales. The change follows the rationale that warranty costs are an integral part of the sale of goods and services. Amortization of brand name and customer relationship intangible assets, previously reported in Cost of sales on the income statement, has been reclassified to Selling expenses. As a consequence 2011 figures have been restated.

2)

Adjusted to make 2011 comparable for the bonus shares (889 thousand) issued in May 2012

3)

The incremental shares from assumed conversion are not taken into account in the periods for which there is a loss attributable to shareholders, as the effect would be antidilutive

 

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Consolidated statements of comprehensive income

all amounts in millions of euros

 

           2nd quarter     January to June  
     2011     2012     2011     2012  

Net income (loss) for the period:

     (1,345     167        (1,207     416   

Other comprehensive income:

        

Actuarial losses and changes in the effect of the asset ceiling on pension plans:

        

Net current period change, before tax

     —          (78     —          (161

Income tax on net current period change

     (1     19        (3     34   

Revaluation reserve:

        

Release revaluation reserve

     (4     (4     (8     (8

Reclassification into retained earnings

     4        4        8        8   

Currency translation differences:

        

Net current period change, before tax

     (112     327        (451     172   

Income tax on net current period change

     —          —          3        (2

Reclassification adjustment for (income) loss realized

     3        (3     3        (1

Available-for-sale financial assets:

        

Net current period change, before tax

     (19     1        (42     4   

Income tax on net current period change

     13        —          13        (1

Reclassification adjustment for (income) loss realized

     11        —          (47     —     

Cash flow hedges:

        

Net current period change, before tax

     (15     (42     (23     (26

Income tax on net current period change

     3        10        2        6   

Reclassification adjustment for loss realized

     1        10        6        8   
    

 

 

   

 

 

   

 

 

 

Other comprehensive (income) loss for the period

     (116     244        (539     33   
    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

     (1,461     411        (1,746     449   

Total comprehensive income (loss) attributable to:

        

Shareholders

     (1,460     424        (1,746     448   

Non-controlling interests

     (1     —          —          1   

 

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Consolidated balance sheets

in millions of euros unless otherwise stated

 

     July 3,      December 31,      July 1,  
     2011      2011      2012  

Non-current assets:

        

Property, plant and equipment

     2,866         3,014         3,040   

Goodwill

     6,180         7,016         7,290   

Intangible assets excluding goodwill

     3,796         3,996         4,061   

Non-current receivables

     102         127         148   

Investments in associates

     164         203         203   

Other non-current financial assets

     367         346         576   

Deferred tax assets

     1,304         1,713         1,792   

Other non-current assets

     210         71         77   
        

 

 

 

Total non-current assets

     14,989         16,486         17,187   

Current assets:

        

Inventories - net

     3,760         3,625         3,973   

Other current financial assets

     3         —           —     

Other current assets

     419         351         418   

Derivative financial assets

     137         229         172   

Income tax receivable

     108         162         137   

Receivables

     3,850         4,415         4,140   

Assets classified as held for sale

     614         551         48   

Cash and cash equivalents

     3,260         3,147         3,134   
        

 

 

 

Total current assets

     12,151         12,480         12,022   
        

 

 

 

Total assets

     27,140         28,966         29,209   

Shareholders’ equity

     13,086         12,355         12,142   

Non-controlling interests

     30         34         35   
        

 

 

 

Group equity

     13,116         12,389         12,177   

Non-current liabilities:

        

Long-term debt

     2,703         3,278         4,123   

Long-term provisions

     1,687         1,880         1,877   

Deferred tax liabilities

     55         77         153   

Other non-current liabilities

     1,616         1,999         1,958   
        

 

 

 

Total non-current liabilities

     6,061         7,234         8,111   

Current liabilities:

        

Short-term debt

     713         582         777   

Derivative financial liabilities

     310         744         845   

Income tax payable

     206         191         149   

Accounts and notes payable

     2,585         3,346         2,717   

Accrued liabilities

     2,601         3,026         2,990   

Short-term provisions

     527         759         663   

Liabilities directly associated with assets held for sale

     427         61         53   

Other current liabilities

     594         634         727   
        

 

 

 

Total current liabilities

     7,963         9,343         8,921   
        

 

 

 

Total liabilities and group equity

     27,140         28,966         29,209   

 

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     July 3,      December 31,      July 1,  
     2011      2011      2012  

Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)

     972,436         926,095         931,391   

Ratios

        

Shareholders’ equity per common share in euros

     13.46         13.34         13.04   

Inventories as a % of sales

     16.8         16.1         16.8   

Net debt : group equity

     1:99         5:95         13:87   

Net operating capital

     11,302         10,427         11,531   

Employees at end of period

     124,738         125,241         121,801   

of which discontinued operations

     3,506         3,353         —     

 

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Consolidated statements of cash flows

all amounts in millions of euros

 

           2nd quarter     January to June  
     2011     2012     2011     2012  

Cash flows from operating activities:

        

Net income (loss)

     (1,345     167        (1,207     416   

(Income) loss from discontinued operations

     97        (7     189        26   

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

        

Depreciation and amortization

     350 1)      343        671 1)      687   

Impairment of goodwill and other non-current financial assets

     1,366        3        1,366        3   

Net gain on sale of assets

     (9     (30     (64     (213

(Income) loss from investments in associates

     4        6        (2     9   

Dividends received from investments in associates

     7        7        23        7   

Dividends paid to non-controlling interests

     (1     —          (1     —     

Decrease in working capital:

     (213     (366     (1,063     (416

Decrease (increase) in receivables and other current assets

     (40     (216     34        9   

Increase in inventories

     (254     (27     (452     (247

Increase (decrease) in accounts payable, accrued and other liabilities

     81        (123     (645     (178

Increase in non-current receivables, other assets and other liabilities

     (145     (108     (275     (259

(Decrease) increase in provisions

     (34     35        (81     58   

Other items

     (14 )1)      2        14 1)      65   
    

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     63        52        (430     383   

Cash flows from investing activities:

        

Purchase of intangible assets

     (17     (21     (65     (40

Proceeds from sale of intangible assets

     —          —          —          160   

Expenditures on development assets

     (69     (75     (119     (139

Capital expenditures on property, plant and equipment

     (178 )1)      (189     (339 )1)      (343

Proceeds from disposals of property, plant and equipment

     21        22        56        410   

Cash from (to) derivatives and securities

     33        (21     52        (45

Purchase of other non-current financial assets

     —          (2     (6     (154

Proceeds from other non-current financial assets

     2        —          89        —     

Purchase of businesses, net of cash acquired

     (132     11        (190     (230

Proceeds from sale of interests in businesses, net of cash disposed of

     (4     30        —          41   
    

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (344     (245     (522     (340

Cash flows from financing activities:

        

Proceeds from issuance of (payments on) short-term debt

     (189     147        (71     188   

Principal payments on long-term debt

     (766     (459     (1,052     (483

Proceeds from issuance of long-term debt

     97        34        121        1,171   

Treasury shares transactions

     45        (288     62        (442

Dividends paid

     (259     (256     (259     (256
    

 

 

   

 

 

   

 

 

 

Net cash (used for) provided by financing activities

     (1,072     (822     (1,199     178   

Net cash (used for) provided by continuing operations

     (1,353     (1,015     (2,151     221   

Cash flow from discontinued operations:

        

Net cash provided by (used for) operating activities

     (159     (229     (360     (201

Net cash (used for) provided by investing activities

     (19     151        (45     3   
    

 

 

   

 

 

   

 

 

 

Net cash used for discontinued operations

     (178     (78     (405     (198

Net cash provided by (used for) continuing and discontinued operations

     (1,531     (1,093     (2,556     23   

 

Q2 2012 Quarterly report and Semi-annual report   25


Table of Contents
           2nd quarter     January to June  
     2011     2012     2011     2012  

Effect of change in exchange rates on cash and cash equivalent

     19        2        (17     (36

Cash and cash equivalents at the beginning of the period

     4,772        4,225        5,833        3,147   
    

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     3,260        3,134        3,260        3,134   

Ratio

        

Cash flows before financing activities

     (281     (193     (952     43   

Net cash paid during the period for

        

Pensions

     (132     (147     (365     (341

Interest

     (58     (32     (136     (108

Income taxes

     (96     (102     (281     (183

For a number of reasons, principally the effects of translation differences, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items.

 

1)

Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment

 

26   Q2 2012 Quarterly report and Semi-annual report


Table of Contents

Consolidated statements of changes in equity

in millions of euros

 

    other reserves  
    common
shares
    capital
in
excess
of par
value
    retained
earnings
    revaluation
reserve
    currency
translation
differences
    unrealized
gain (loss)
on
available-
for-sale
financial
assets
    changes
in fair
value
of cash
flow
hedges
    total     treasury
shares
at cost
    total
shareholders’
equity
    non-
controlling
interests
    total
equity
 

January to June 2012

                       

Balance as of December 31, 2011

    202        813        12,917        70        7        45        (9     43        (1,690     12,355        34        12,389   

Total comprehensive income

        296        (8     169        3        (12     160          448        1        449   

Dividend distributed

    6        422        (687                 (259     —          (259

Movement non-controlling interest

        —                      —          —          —     

Purchase of treasury shares

        (47               (416     (463       (463

Re-issuance of treasury shares

      (19     (20               60        21          21   

Share-based compensation plans

      41                      41          41   

Income tax share-based compensation plans

      (1                   (1       (1
    6        443        (754               (356     (661     —          (661

Balance as of July 1, 2012

    208        1,256        12,459        62        176        48        (21     203        (2,046     12,142        35        12,177   

January to June 2011

                       

Balance as of December 31, 2010

    197        354        15,416        86        (65     139        (5     69        (1,076     15,046        46        15,092   

Total comprehensive income

        (1,202     (8     (445     (76     (15     (536       (1,746     —          (1,746

Dividend distributed

    5        443        (711                 (263       (263

Movement non-controlling interest

        (5                 (5     (16     (21

Re-issuance of treasury shares

      (32     (2               63        29          29   

Share-based compensation plans

      28                      28          28   

Income tax share-based compensation plans

      (3                   (3       (3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    5        436        (718               63        (214     (16     (230
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of July 3, 2011

    202        790        13,496        78        (510     63        (20     (467     (1,013     13,086        30        13,116   

 

Q2 2012 Quarterly report and Semi-annual report   27


Table of Contents

Sectors

all amounts in millions of euros unless otherwise stated

As of 2012 we have implemented an accounting policy change. IP royalties on products sold by a sector were allocated to that sector, with the exception of sector Consumer Lifestyle. At sector Consumer Lifestyle IP royalties on products no longer sold by the sector were allocated to Consumer Lifestyle itself. As of 2012, all IP royalties on products no longer sold by a sector have been allocated to sector Innovation, Group & Services. As a consequence 2011 figures have been restated.

Sales and income (loss) from operations

 

     2nd quarter  
     2011     2012  
                  income from operations                  income from operations  
     sales
including
intercompany
    sales      amount     as a %
of sales
    sales
including
intercompany
    sales      amount     as a %
of sales
 

Healthcare

     2,083        2,080         (611     (29.4     2,418        2,413         284        11.8   

Consumer Lifestyle

     1,250        1,247         (9     (0.7     1,359        1,356         86        6.3   

Lighting

     1,779        1,777         (470     (26.4     2,031        2,026         49        2.4   

Innovation, Group & Services

     175        112         (33     —          159        97         (81     —     

Inter-sector eliminations

     (71            (75       
           

 

 

   

 

 

    

 

 

   

 

 

 
     5,216        5,216         (1,123     (21.5     5,892        5,892         338        5.7   

Sales and income (loss) from operations

 

     January to June  
     2011     2012  
                  income from operations                  income from operations  
    

sales

including
intercompany

    sales      amount     as a %
of sales
   

sales

including
intercompany

    sales      amount     as a %
of sales
 

Healthcare

     4,058        4,051         (473     (11.7     4,633        4,622         459        9.9   

Consumer Lifestyle

     2,501        2,496         55        2.2        2,649        2,642         327        12.4   

Lighting

     3,683        3,680         (318     (8.6     4,050        4,041         66        1.6   

Innovation, Group & Services

     370        246         (68     —          320        195         (76     —     

Inter-sector eliminations

     (139            (152       
           

 

 

   

 

 

    

 

 

   

 

 

 
     10,473        10,473         (804     (7.7     11,500        11,500         776        6.7   

 

28   Q2 2012 Quarterly report and Semi-annual report


Table of Contents

Sectors and main countries

in millions of euros

Sales and total assets

 

     sales      total assets  
     January to June      July 3,      July 1,  
     2011      2012      2011      2012  

Healthcare

     4,051         4,622         10,297         11,760   

Consumer Lifestyle

     2,496         2,642         3,248         3,337   

Lighting

     3,680         4,041         6,644         7,242   

Innovation, Group & Services

     246         195         6,337         6,822   
     

 

 

    

 

 

    

 

 

 
     10,473         11,500         26,526         29,161   

Assets classified as held for sale

           614         48   
        

 

 

    

 

 

 
           27,140         29,209   

Sales and tangible and intangible assets

 

     sales      tangible and intangible assets1)  
     January to June      July 3,      July 1,  
     20112)      2012      20112)      2012  

Netherlands

     335         304         920         894   

United States

     2,987         3,358         7,967         8,591   

China

     939         1,247         639         1,169   

Germany

     642         653         262         261   

Japan

     479         548         445         625   

France

     427         492         102         95   

India

     311         365         168         148   

Other countries

     4,353         4,533         2,339         2,608   
     

 

 

    

 

 

    

 

 

 
     10,473         11,500         12,842         14,391   

 

1) 

Includes property, plant and equipment, intangible assets excluding goodwill, and goodwill

2) 

Revised to reflect an adjusted country allocation

 

Q2 2012 Quarterly report and Semi-annual report   29


Table of Contents

Pension costs

in millions of euros

Specification of pension costs

 

     2nd quarter  
     2011     2012  
     Netherlands     other     total     Netherlands     other     total  

Costs of defined-benefit plans (pensions)

            

Service cost

     32        17        49        44        21        65   

Interest cost on the defined-benefit obligation

     139        99        238        127        100        227   

Expected return on plan assets

     (179     (96     (275     (184     (110     (294

Prior service cost

     —          1        1        —          —          —     

Curtailment

     —          (15     (15     —          —          —     
        

 

 

   

 

 

   

 

 

 

Net periodic cost (income)

     (8     6        (2     (13     11        (2

of which discontinued operations

     1        1        2        —          —          —     

Costs of defined-contribution plans

     2        24        26        2        30        32   

Costs of defined-benefit plans (retiree medical)

            

Service cost

     —          1        1        —          —          —     

Interest cost on the defined-benefit obligation

     —          4        4        —          3        3   

Prior service cost

     —          (1     (1     —          (26     (26
        

 

 

   

 

 

   

 

 

 

Net periodic cost

     —          4        4        —          (23     (23

Specification of pension costs

 

     January to June  
     2011     2012  
     Netherlands     other     total     Netherlands     other     total  

Costs of defined-benefit plans (pensions)

            

Service cost

     64        36        100        87        42        129   

Interest cost on the defined-benefit obligation

     278        201        479        255        195        450   

Expected return on plan assets

     (357     (193     (550     (369     (216     (585

Prior service cost

     —          1        1        —          —          —     

Curtailment

     —          (15     (15     —          —          —     
        

 

 

   

 

 

   

 

 

 

Net periodic cost (income)

     (15     30        15        (27     21        (6

of which discontinued operations

     2        1        3        —          1        1   

Costs of defined-contribution plans

     4        57        61        5        67        72   

of which discontinued operations

     —          1        1        1        1        2   

Costs of defined-benefit plans (retiree medical)

            

Service cost

     —          1        1        —          1        1   

Interest cost on the defined-benefit obligation

     —          9        9        —          6        6   

Prior service cost

     —          (2     (2     —          (27     (27
        

 

 

   

 

 

   

 

 

 

Net periodic cost

     —          8        8        —          (20     (20

 

30   Q2 2012 Quarterly report and Semi-annual report


Table of Contents

Reconciliation of non-GAAP performance measures

all amounts in millions of euros unless otherwise stated.

Certain non-GAAP financial measures are presented when discussing the Philips Group’s performance. In the following tables, a reconciliation to the most directly comparable IFRS performance measure is made.

Sales growth composition (in %)

 

     2nd quarter     January to June  
     comparable
growth
    currency
effects
    consolidation
changes
     nominal
growth
    comparable
growth
    currency
effects
     consolidation
changes
    nominal
growth
 

2012 versus 2011

                  

Healthcare

     7.3        8.7        —           16.0        7.9        6.2         —          14.1   

Consumer Lifestyle

     2.5        4.8        1.4         8.7        1.0        3.1         1.7        5.8   

Lighting

     5.5        6.1        2.4         14.0        3.9        3.9         2.0        9.8   

IG&S

     (13.0     (0.4     —           (13.4     (9.0     0.2         (11.9     (20.7
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Philips Group

     5.2        6.7        1.1         13.0        4.5        4.5         0.8        9.8   

EBITA (or Adjusted income from operations) to Income from operations (or EBIT)

 

     Philips
Group
    Healthcare     Consumer
Lifestyle
    Lighting     IG&S  

January to June 2012

          

EBITA (or Adjusted income from operations)

     1,002        558        362        154        (72

Amortization of intangibles1)

     (226     (99     (35     (88     (4

Impairment of goodwill

     —          —          —          —          —     

Income from operations (or EBIT)

     776        459        327        66        (76

January to June 2011

          

EBITA (or Adjusted income from operations)

     809        475        105        294        (65

Amortization of intangibles1)

     (258     (124     (50     (81     (3

Impairment of goodwill

     (1,355     (824     —          (531     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations (or EBIT)

     (804     (473     55        (318     (68

 

1)

Excluding amortization of software and product development

Composition of net debt to group equity

 

     July 3,
2011
     December 31,
2011
     July 1,
2012
 

Long-term debt

     2,703         3,278         4,123   

Short-term debt

     713         582         777   
        

 

 

 

Total debt

     3,416         3,860         4,900   

Cash and cash equivalents

     3,260         3,147         3,134   
        

 

 

 

Net debt (cash) (total debt less cash and cash equivalents)

     156         713         1,766   

Shareholders’ equity

     13,086         12,355         12,142   

Non-controlling interests

     30         34         35   
        

 

 

 

Group equity

     13,116         12,389         12,177   

Net debt and group equity

     13,272         13,102         13,943   

Net debt divided by net debt and group equity (in %)

     1         5         13   

Group equity divided by net debt and group equity (in %)

     99         95         87   

 

Q2 2012 Quarterly report and Semi-annual report   31


Table of Contents

Reconciliation of non-GAAP performance measures (continued)

 

all amounts in millions of euros

Net operating capital to total assets

 

     Philips
Group
     Healthcare      Consumer
Lifestyle
     Lighting      IG&S  

July 1, 2012

              

Net operating capital (NOC)

     11,531         8,542         1,546         5,343         (3,900

Exclude liabilities comprised in NOC:

              

- payables/liabilities

     9,385         2,775         1,419         1,548         3,643   

- intercompany accounts

     —           68         33         54         (155

- provisions

     2,540         287         339         275         1,639   

Include assets not comprised in NOC:

              

- investments in associates

     203         88         —           22         93   

- other non-current financial assets

     576         —           —           —           576   

- deferred tax assets

     1,792         —           —           —           1,792   

- cash and cash equivalents

     3,134         —           —           —           3,134   
     29,161         11,760         3,337         7,242         6,822   

Assets classified as held for sale

     48               

Total assets

     29,209               

December 31, 2011

              

Net operating capital (NOC)

     10,427         8,418         884         5,020         (3,895

Exclude liabilities comprised in NOC:

              

- payables/liabilities

     9,940         2,697         2,039         1,450         3,754   

- intercompany accounts

     —           103         87         51         (241

- provisions

     2,639         287         558         227         1,567   

Include assets not comprised in NOC:

              

- investments in associates

     203         86         3         23         91   

- other non-current financial assets

     346         —           —           —           346   

- deferred tax assets

     1,713         —           —           —           1,713   

- cash and cash equivalents

     3,147         —           —           —           3,147   
     

 

 

    

 

 

    

 

 

    

 

 

 
     28,415         11,591         3,571         6,771         6,482   

Assets classified as held for sale

     551               

Total assets

     28,966               

Net operating capital (NOC)

     11,302         7,534         1,428         5,021         (2,681

Exclude liabilities comprised in NOC:

              

- payables/liabilities

     7,912         2,363         1,403         1,330         2,816   

- intercompany accounts

     —           73         109         51         (233

- provisions

     2,214         255         308         221         1,430   

Include assets not comprised in NOC:

              

- investments in associates

     164         72         —           21         71   

- other current financial assets

     3         —           —           —           3   

- other non-current financial assets

     367         —           —           —           367   

- deferred tax assets

     1,304         —           —           —           1,304   

- cash and cash equivalents

     3,260         —           —           —           3,260   
     

 

 

    

 

 

    

 

 

    

 

 

 
     26,526         10,297         3,248         6,644         6,337   

Assets classified as held for sale

     614               
  

 

 

             

Total assets

     27,140               

 

32   Q2 2012 Quarterly report and Semi-annual report


Table of Contents

Reconciliation of non-GAAP performance measures (continued)

 

all amounts in millions of euros

Composition of cash flows

 

           2nd quarter     January to June  
     2011     2012     2011     2012  

Cash flows provided by (used for) operating activities

     63 1)      52        (430 )1)      383   

Cash flows used for investing activities

     (344 )1)      (245     (522 )1)      (340
    

 

 

   

 

 

   

 

 

 

Cash flows before financing activities

     (281     (193     (952     43   

Cash flows provided by (used for) operating activities

     63 1)      52        (430 )1)      383   

Net capital expenditures:

     (243     (263     (467     48   

Purchase of intangible assets

     (17     (21     (65     (40

Proceeds from sale of intangible assets

     —          —          —          160   

Expenditures on development assets

     (69     (75     (119     (139

Capital expenditures on property, plant and equipment

     (178 )1)      (189     (339 )1)      (343

Proceeds from disposals of property, plant and equipment

     21        22        56        410   
    

 

 

   

 

 

   

 

 

 

Free cash flows

     (180     (211     (897     431   

 

1)

Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment

 

Q2 2012 Quarterly report and Semi-annual report   33


Table of Contents

Philips quarterly statistics

all amounts in millions of euros unless otherwise stated

 

     2011     2012
     1st quarter      2nd quarter     3rd quarter     4th quarter     1st quarter      2nd quarter      3rd quarter    4th quarter

Sales

     5,257         5,216        5,394        6,712        5,608         5,892         

% increase

     6         (3     (1     3        7         13         

EBITA

     438         371        368        503        552         450         

as a % of sales

     8.3         7.1        6.8        7.5        9.8         7.6         

EBIT

     319         (1,123     273        262        438         338         

as a % of sales

     6.1         (21.5     5.1        3.9        7.8         5.7         

Net income (loss)

     138         (1,345     76        (160     249         167         

Net income (loss) - shareholders per common share in euros - basic

     0.14         (1.39     0.08        (0.17     0.27         0.18         

 

     January-
March
     January-
June
    January-
September
    January-
December
    January-
March
     January-
June
     January-
September
   January-
December

Sales

     5,257         10,473        15,867        22,579        5,608         11,500         

% increase

     6         1        0        1        7         10         

EBITA

     438         809        1,177        1,680        552         1,002         

as a % of sales

     8.3         7.7        7.4        7.4        9.8         8.7         

EBIT

     319         (804     (531     (269     438         776         

as a % of sales

     6.1         (7.7     (3.3     (1.2     7.8         6.7         

Net income (loss)

     138         (1,207     (1,131     (1,291     249         416         

Net income (loss) - shareholders per common share in euros - basic

     0.14         (1.26     (1.18     (1.36     0.27         0.45         

Net income (loss) from continuing operations as a % of shareholders’ equity

     6.6         (14.8     (8.8     (5.7     8.9         7.2         
     period ended 2011     period ended 2012

Inventories as a % of sales

     15.7         16.8        18.2        16.1        16.7         16.8         

Net debt : group equity ratio

     (3):103         1:99        8:92        5:95        6:94         13:87         

Total employees (in thousands)

     122         125        125        125        122         122         

of which discontinued operations

     4         4        4        3        —           —           

Information also available on Internet, address: www.philips.com/investorrelations

 

34   Q2 2012 Quarterly report and Semi-annual report


Table of Contents

Notes overview

Notes to the unaudited semi-annual consolidated financial statements

 

LOGO   

Significant accounting policies

     36   
LOGO   

Estimates

     38   
LOGO   

Financial risk management

     38   
LOGO   

Segment information

     38   
LOGO   

Seasonality

     38   
LOGO   

Discontinued operations and Other assets classified as held for sale

     38   
LOGO   

Acquisitions and divestments

     39   
LOGO   

Income taxes

     39   
LOGO   

Investments in associates

     40   
LOGO   

Property, plant and equipment

     40   
LOGO   

Goodwill

     40   
LOGO   

Intangible assets excluding goodwill

     41   
LOGO   

Other non-current financial assets

     42   
LOGO   

Inventories

     42   
LOGO   

Shareholders’ equity

     42   
LOGO   

Short-term and long-term debt

     43   
LOGO   

Provisions

     43   
LOGO   

Accrued liabilities

     43   
LOGO   

Pensions

     43   
LOGO   

Contingent liabilities

     43   
LOGO   

Related-party transactions

     44   
LOGO   

Share-based compensation

     45   

 

 

 

Q2 2012 Quarterly report and Semi-annual report   35


Table of Contents

Notes to the unaudited semi-annual consolidated financial statements

all amounts in millions of euros unless otherwise stated

 

This report contains the semi-annual financial report of Koninklijke Philips Electronics N.V. (‘the Company’), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (the Philips Group) are described in note 4, Segment information.

The semi-annual financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union.

 

LOGO Significant accounting policies

The significant accounting policies applied in these semi- annual financial statements are consistent with those applied in the Company’s Consolidated IFRS financial statements as at and for the year ended December 31, 2011, except for the following three voluntary accounting policy changes and the adoption of the below amendment to a standard. Additionally, as mentioned in note 4, Segment information, the previously reporte