Gerard KleisterleePresident and CEO
Royal Philips Electronics
Creating value:Blending growth and capital management
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Philips Group Objectives
• IFO margins of 7-10% in the course of 2006
• Consistent returns in excess of the cost of capital
• Reduce earnings volatility of cyclical businesses
• Improve stability / predictability across the portfolio
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Philips’ changing portfolio – growth
Medical SystemsLighting
Domestic Appliances
cash
shareholders
Consumer Electronics
Semiconductors
Financial stakes
grow
lower risks
reduce
Current IFO margins between 13-16%
Target IFO margin of 4-4.5%
Target IFO margin of 5-15% (over the cycle)
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Summary of Transaction
• Acquisition price:
• Source of financing:
• Post-deal status of Lumileds:
• Headquarters:
• Conditions to closing:
• Anticipated transaction close:
US$ 950 (EUR 765) million
Cash on hand
Fully consolidated business unit within Philips Lighting
San Jose, California
Receipt of required government approvals and other customary conditions government
Q4 of 2005
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Why acquire Agilent’s stake in Lumileds?
• Builds on Philips’ leading global position in lighting
• Gives Philips a controlling share in a leading LED (light emitting diode) company
• Extends Philips’ involvement to all segments of the LED value chain
• Gives Philips access to strong portfolio of over 200 LED patents
• Deepens Philips’ presence in the higher-growth, higher-margin segments of the LED market
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Lighting• Number 1 market position globally with strong margins and cash flows
• End-user-driven innovation, marketing and supply excellence
• Accelerated growth from emerging markets in UHP, automotive and LEDs
• Investments in R&D and capital expenditures to propel innovation and growth
EUR billion
Sales IFO
as % of sales
EUR million
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Philips’ changing portfolio – capital management
Medical SystemsLighting
Domestic Appliances
cash
shareholders
Consumer Electronics
Semiconductors
Financial stakes
grow
lower risks
reduce
Current IFO margins between 13-16%
Target IFO margin of 4-4.5%
Target IFO margin of 5-15% (over the cycle)
8
Philips’ changing portfolio – capital management
Medical SystemsLighting
Domestic Appliances
cash
shareholders
Consumer Electronics
Semiconductors
Financial stakes
grow
lower risks
reduce
Current IFO margins between 13-16%
Target IFO margin of 4-4.5%
Target IFO margin of 5-15% (over the cycle)
9
Share repurchase programs in 2005
First program:
• Start date: January 27• Size: EUR 750 million• Use of funds: Capital reduction (EUR 500 million)
and hedging (EUR 250 million)• Duration: 6 months
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Share repurchase programs in 2005
First program:
• Start date: January 27• Size: EUR 750 million• Use of funds: Capital reduction (EUR 500 million)
and hedging (EUR 250 million)• Duration: 6 months
Second program:
• Start date: August 15• Size: EUR 1.5 billion• Use of funds: Capital reduction• Duration: Up to 12 months
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Impact on net debt : group equity ratioEUR billion
Net debt / group equity ratio
Group equity
Net debt
8:92 13:87
* Reflecting impact of Lumileds and Stentor acquisitions, new share buyback program, and lowering of holdings inTSMC, LG.Philips LCD and Atos Origin.
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Conclusion
Blending growth and capital management will help us:
• Grow more stably and predictably
• Maintain our strong financial position
• Become a simpler organization to understand
• Continue to demonstrate financial discipline
• Create value for shareholders