Philips’ Annual Report 2010

Simply making a difference

The year 2010

• In 2010, despite experiencing a recovery in certain markets, overall worldwide market conditions remained challenging, particularly in developed countries. We recorded a moderate 4% comparable sales growth; however, as a result of continued focus on cost management, significant improvements in EBIT, EBITA and Net income were achieved. Additionally, our cash flow from operating activities was higher than in 2009.
• EBIT of EUR 2,065 million, or 8.1% of sales was significantly higher than the EUR 614 million, or 2.6% of sales achieved in 2009. Significant EBIT improvement, led by Lighting, was achieved in all sectors. As a percentage of sales, 2010 EBIT and EBITA were at the highest levels since 2000. 
• Following a strong rebound in the first six months of the year, sales growth slowed in the second half, ending at 10% nominal for the full year. Adjusted for favorable currency effects, comparable sales were 4% higher than in 2009, attributable to growth in al sectors, notably Lighting. Within Lighting, growth in automotive and LED markets was strong, partly mitigated by limited growth at Professional Luminaires due to weak construction markets in the US and Western Europe; Healthcare sales grew 4%, supported by 6% growth in all businesses except Imaging Systems, which was broadly in line with 2009. Growth at Consumer Lifestyle was limited to 1%, as solid growth at Health & Wellness and Personal Care was tempered by limited growth at Television and sales declines at Audio & Video Multimedia and Accessories.
• 12% comparable sales growth was achieved in emerging markets, while mature markets grew 1%. Emerging markets accounted for 33% of total sales, up form 30% in 2009.
• We continued to invest in strategically aligned, high-growth companies to strengthen our potrfolio. In 2010, we completed 11 acquisitions, contributing to all thre sectors, notably Discus Holdings in Consumer Lifestyle. The cash outflow related to aquisitions amounted to EUR 239 million.
• During the year, particulary in the first three quarters, Television showed a significant year-on-year improvement in EBITA. However, with high inventory in retail, and sever price erosion in the fourth quarter, the Television business did not achieve break-even for the year. To improve profitability in the business and reduce exposure, we concluded brand licensing agreements in India and China. We will take further action to address the profitability issue in the business in 2011.
• We generated WUR 2.2 billion of cash flow from operating activities, EUR 611 million higher than in 2009. Our cash flows before financing activities were EUR 128 million higher than 2009, as higher cash flow from operating activities was partly offset by lower proceeds from the sale of stakes.