Annual Report 2008
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Management summary

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The year 2008...

  • 2008 was impacted by the most globally significant economic downturn in many years. For Philips, this led to a 3% decline in comparable sales and lower earnings. In response, we proactively expanded and accelerated restructuring programs across all sectors and stepped up our focus on costs and cash management.
  • 2008 was nevertheless a year of strategic progress. We continued the reshaping of our portfolio by investing EUR 5.3 billion in high-growth, high-margin businesses such as Respironics and Genlyte, and divesting unprofitable activities such as Television in North America and non-core businesses such as Set-Top Boxes and PC Monitors.
  • Healthcare sales grew by 6% on a comparable basis; all businesses contributed to this growth. Lighting achieved 3% comparable sales growth, driven by energy-efficient lighting solutions. Consumer Lifestyle sales on a comparable basis, declined 8% compared to 2007, reflecting the severe economic downturn in consumer markets in the second half of 2008.
  • Emerging markets remained a major focal point and delivered 4% comparable growth in 2008 – with Healthcare and Lighting growing by 12% and 8% respectively. Additionally, we announced and/or finalized five strategic Healthcare acquisitions in China, Brazil and India.
  • EBIT included EUR 1.1 billion of charges related to restructuring and change programs across all sectors (EUR 520 million), an asbestos-related settlement charge (EUR 239 million), a non-cash goodwill impairment charge for Lumileds (EUR 232 million) and acquisition-related charges, mainly in Healthcare and Lighting (EUR 146 million), which were partially offset by EUR 164 million of gains on the sale of businesses and real estate.
  • We generated strong cash flows from operations of EUR 1,495 million despite lower earnings, driven by rigorous working capital management. In addition, in March we structurally refinanced our debt – prior to the collapse of the financial markets – providing Philips with a strong balance sheet and a solid liquidity position to help weather the turbulent economic situation.
  • We reduced our shareholding in LG Display and sold our remaining stake in TSMC, generating EUR 2.5 billion in cash proceeds and realizing a gain of just under EUR 1.2 billion. The economic downturn led us to take a non-cash value adjustment of EUR 1.4 billion on the majority of our remaining financial holdings.
  • We completed EUR 3.3 billion of the EUR 5 billion share buy-back program announced in 2007, which was subsequently stopped in January 2009 until further notice. Additionally, we returned EUR 720 million to shareholders in the form of our annual dividend payment.

Key data
in millions of euros unless otherwise stated
 
2006 1)
2007 1)
2008
 
 
 
 
Sales
26,682
26,793
26,385
EBITA 2)
1,383
2,054
931
as a % of sales
5.2
7.7
3.5
EBIT
1,198
1,841
317
as a % of sales
4.5
6.9
1.2
Financial income and expenses
28
2,613
(225)
Income tax expense
(166)
(619)
(286)
Results of equity-accounted investees
(157)
763
19
Minority interests
(4)
(5)
(3)
Income (loss) from continuing operations
899
4,593
(178)
Income (loss) from discontinued operations
4,482
(433)
(8)
Net income (loss)
5,381
4,160
(186)
Per common share - basic
4.58
3.83
(0.19)
Per common share - diluted
4.55
3.79
(0.19)
 
 
 
 
Net operating capital (NOC) 2)
8,473
10,529
14,867
Cash flows before financing activities
(2,472)
5,449
(1,606)
Employees (FTEs)
121,732
123,801
121,398
of which discontinued operations
6,640
5,703
−
 
1) Revised to reflect immaterial adjustments of intercompany profit eliminations on inventories.
2) For a reconciliation to the most directly comparable US GAAP measures, see Reconciliation of non-US GAAP information.
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  • Comparable sales
    excludes the effect of currency movements and acquisitions and divestments (changes in consolidation). Philips believes that comparable sales information enhances understanding of sales performance.
  • NOC
    NOC is defined as: total assets excluding assets from discontinued operations less: (a) cash and cash equivalents, (b) deferred tax assets, (c) other non-current financial assets, (d) investments in equity-accounted investees, and after deduction of: (e) provisions excluding deferred tax liabilities, (f) accounts and notes payable, (g) accrued liabilities, (h) current/non-current liabilities, and (i) trading securities.
This is an interactive electronic version of the Philips Annual Report 2008 and also contains certain information in summarized form. The contents of this version are qualified in their entirety by reference to the printed version of the Philips Annual Report 2008. The printed version is available as a PDF file on this website. Information about: forward-looking statements, third-party market share data, fair value information, US GAAP basis of presentation, use of non-US GAAP information, statutory financial statements and management report, revision and reclassifications and analysis of 2007 compared to 2006.
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