Form 6-K

 

 

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

April 22, 2014

 

 

KONINKLIJKE PHILIPS N.V.

(Exact name of registrant as specified in its charter)

 

 

Royal Philips

(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 N.V.

Amstelplein 2

1096 BC Amsterdam – The Netherlands

 

 

 


This report comprises a copy of the following press release:

- “Philips Q1 2014 Quarterly Report”, dated April 22, 2014.

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 22nd day of April 2014.

 

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


Q1 2014 Quarterly report

Philips reports Q1 sales of EUR 5 billion and operational results of EUR 368 million

 

  Group comparable sales growth flat, with sales in growth geographies up 5%

 

  Healthcare comparable equipment order intake up 1%

 

  Currency negatively impacted sales by 5% and EBITA by 1.8 percentage points of sales

 

  EBITA of EUR 314 million, compared to EUR 402 million in Q1 2013

 

  EBITA excluding restructuring and acquisition-related charges amounted to EUR 368 million, or 7.3% of sales, compared to 8.0% in Q1 2013

 

  Net income of EUR 137 million, compared to EUR 162 million in Q1 2013

 

  Free cash outflow of EUR 72 million, excluding a EUR 273 million pension contribution related to the de-risking of the Dutch pension plan

 

  Inventories improved by 0.6 percentage points to 14.9% of sales

 

  Company reiterates commitment to 2016 financial targets

Frans van Houten, CEO:

“Our first-quarter financial results reflect a challenging start to the year. Significant currency impact, market headwinds in, among others, China and Russia, and the business impact of the voluntary suspension at our healthcare production facility in Cleveland resulted in flat comparable sales growth and a decline in EBITA as a percentage of sales of 130 basis points. We recorded a lower level of profitability at Healthcare, whereas Lighting and Consumer Lifestyle continued to deliver a year-on-year operational margin improvement.

At Lighting, LED-based sales grew by 37%, and we are encouraged by the positive reception given by our customers to our broad range of new connected lighting solutions demonstrated at the Light + Building trade fair in Germany. Consumer Lifestyle grew 7%, with a particularly strong performance at Floor Care and Air Purifiers. At Healthcare, we see encouraging developments in our order book and increasing opportunities for multi-year deals.

Our multi-year transformation program Accelerate! continues to show strong traction, driven by a solid innovation pipeline, investments in future growth and a company-wide focus on improved operational and financial performance. We are also taking comprehensive measures to raise the efficacy of our quality management system to Philips Excellence standards in close collaboration with industry experts. Our overhead cost reduction program and our Design for Excellence program are on track, thus helping to partly offset the negative currency impact.

Looking ahead, 2014 will be a challenging year, but we remain very confident of achieving our 2016 mid-term financial targets.”


Q1 financials overview:

Healthcare comparable sales showed a 2% decline year-on-year. Home Healthcare Solutions posted mid-single-digit growth, while Customer Services and Patient Care & Clinical Informatics achieved low-single-digit growth. Imaging Systems recorded a double-digit decline. In growth geographies, comparable sales showed a mid-single-digit decline. Currency-comparable equipment order intake increased by 1% year-on-year, with Patient Care & Clinical Informatics recording double-digit growth, while Imaging Systems posted a mid-single-digit decline. EBITA margin excluding restructuring and acquisition-related charges declined to 8.8%, a decrease of 1.7 percentage points year-on-year.

Consumer Lifestyle comparable sales increased by 7%, with high-single-digit growth at Domestic Appliances and mid-single-digit growth at Health & Wellness and Personal Care. In growth geographies, comparable sales showed a double-digit increase, while mature geographies achieved low-single-digit growth. EBITA margin excluding restructuring and acquisition-related charges increased to 10.6%, a year-on-year improvement of 0.7 percentage points.

Lighting comparable sales were flat year-on-year. Lumileds and Automotive achieved double-digit growth, while Light Sources & Electronics and Professional Lighting Solutions posted a low-single-digit decline and Consumer Luminaires recorded a high-single-digit decline. LED-based sales grew by 37% compared to Q1 2013 and now represent 33% of total Lighting sales. In growth geographies, comparable sales (excluding OEM Lumileds) showed a low-single-digit increase. EBITA margin excluding restructuring and acquisition-related charges was 9.0%, a year-on-year improvement of 0.6 percentage points.

As of the end of March, Philips had completed 14% of the EUR 1.5 billion share buy-back program.

Please refer to page 19 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

 

     Q1     Q1  
     2013     2014  

Sales

     5,258        5,020   

EBITA

     402        314   

as a % of sales

     7.6        6.3   

EBIT

     305        226   

as a % of sales

     5.8        4.5   

Financial income (expenses)

     (83     (69

Income taxes

     (69     (39

Results investments in associates

     1        21   

Net income from continuing operations

     154        139   

Discontinued operations

     8        (2

Net income

     162        137   

Net income attributable to shareholders per common share (in euros) - diluted

     0.17        0.15   

Net income

 

  Net income amounted to EUR 137 million, compared to EUR 162 million in Q1 2013. The year-on-year decrease reflects lower operational results and higher restructuring charges in 2014.

 

  EBITA amounted to EUR 314 million, or 6.3% of sales, compared to EUR 402 million, or 7.6% of sales, in Q1 2013. Restructuring and acquisition-related charges amounted to EUR 54 million in Q1 2014, compared with EUR 19 million in Q1 2013. Unfavorable currency effects had an impact on Q1 2014 EBITA of 1.8 percentage points of sales.

 

  EBITA, excluding restructuring and acquisition-related charges, was EUR 368 million, or 7.3% of sales, compared to EUR 421 million, or 8.0% of sales, in Q1 2013. Improved earnings at Consumer Lifestyle and Lighting were offset by lower results at Healthcare and IG&S.

 

  Tax charges were EUR 30 million lower than in Q1 2013, mainly due to lower taxable earnings.

 

  Results from investments in associates amounted to EUR 21 million, mainly attributable to one-off gains.

 

  Income from discontinued operations decreased by EUR 10 million, mainly impacted by lower sales at WOOX Innovations and the remeasurement of environmental provisions following changes in discount rates.
 

 

Q1 2014 Quarterly report    3


Sales by sector

in millions of euros unless otherwise stated

 

    Q1     Q1           % change  
    2013     2014     nominal     comparable  

Healthcare

    2,127        1,966        (8     (2

Consumer Lifestyle

    1,003        1,016        1        7   

Lighting

    1,975        1,892        (4     0   

Innovation, Group & Services

    153        146        (5     (10
 

 

 

   

 

 

   

 

 

   

 

 

 

Philips Group

    5,258        5,020        (5     0   

Sales per geographic cluster

in millions of euros unless otherwise stated

 

    Q1     Q1           % change  
    2013     2014     nominal     comparable  

Western Europe

    1,341        1,328        (1     (1

North America

    1,650        1,530        (7     (3

Other mature geographies

    493        450        (9     3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total mature geographies

    3,484        3,308        (5     (2

Growth geographies

    1,774        1,712        (3     5   
 

 

 

   

 

 

   

 

 

   

 

 

 

Philips Group

    5,258        5,020        (5     0   

Sales per sector

 

  Group sales amounted to EUR 5,020 million, remaining flat year-on-year on a comparable basis. Group nominal sales declined by 5%, due to negative currency effects.

 

  Healthcare comparable sales showed a 2% decline year-on-year. Home Healthcare Solutions posted mid-single-digit growth, while Customer Services and Patient Care & Clinical Informatics achieved low-single-digit growth. Imaging Systems recorded a double-digit decline.

 

  Consumer Lifestyle comparable sales increased by 7%. High-single-digit comparable sales growth was seen at Domestic Appliances, while Health & Wellness and Personal Care recorded mid-single-digit growth.

 

  Lighting comparable sales were flat year-on-year. Lumileds and Automotive achieved double-digit growth, while Light Sources & Electronics and Professional Lighting Solutions posted a low-single-digit decline. Consumer Luminaires recorded a high-single-digit decline.

Sales per geographic cluster

 

  Growth geographies delivered 5% comparable sales growth year-on-year, driven by higher sales at Consumer Lifestyle and Lighting.

 

  Comparable sales in mature geographies decreased by 2% compared to Q1 2013, mainly due to Healthcare and Lighting in North America.
 

 

4    Q1 2014 Quarterly report


EBITA

in millions of euros

 

     Q1     Q1  
     2013     2014  

Healthcare

     222        152   

Consumer Lifestyle

     98        108   

Lighting

     147        138   

Innovation, Group & Services

     (65     (84
  

 

 

   

 

 

 

Philips Group

     402        314   

EBITA

as a % of sales

 

     Q1     Q1  
     2013     2014  

Healthcare

     10.4        7.7   

Consumer Lifestyle

     9.8        10.6   

Lighting

     7.4        7.3   

Innovation, Group & Services

     (42.5     (57.5
  

 

 

   

 

 

 

Philips Group

     7.6        6.3   

Restructuring and acquisition-related charges

in millions of euros

 

     Q1     Q1  
     2013     2014  

Healthcare

     (2     (21

Consumer Lifestyle

     (1     —     

Lighting

     (19     (33

Innovation, Group & Services

     3        —     
  

 

 

   

 

 

 

Philips Group

     (19     (54

EBIT

in millions of euros unless otherwise stated

 

     Q1     Q1  
     2013     2014  

Healthcare

     176        109   

Consumer Lifestyle

     84        96   

Lighting

     110        108   

Innovation, Group & Services

     (65     (87
  

 

 

   

 

 

 

Philips Group

     305        226   

as a % of sales

     5.8        4.5   

Earnings per sector

 

  Healthcare EBITA decreased by EUR 70 million year-on-year. Excluding restructuring and acquisition-related charges, EBITA declined by EUR 51 million, mainly due to lower sales volume, reduced gross margins and the production suspension in our Cleveland facility.

 

  Consumer Lifestyle EBITA increased by EUR 10 million year-on-year. Excluding restructuring and acquisition-related charges, EBITA improved by EUR 9 million. The higher EBITA was largely attributable to improved gross margins.

 

  Lighting EBITA decreased by EUR 9 million year-on-year. Excluding restructuring and acquisition-related charges, EBITA improved by EUR 5 million, driven by higher gross margins and lower overhead costs.

 

  Innovation, Group & Services EBITA decreased by EUR 19 million year-on-year. Excluding restructuring and acquisition-related charges, EBITA declined by EUR 16 million compared to Q1 2013. The decrease was mainly due to higher investments in our emerging business areas and Accelerate! and the remeasurement of environmental provisions following changes in discount rates, partly offset by higher IP royalties.
 

 

Q1 2014 Quarterly report    5


Financial income and expenses

in millions of euros

 

     Q1
2013
    Q1
2014
 

Net interest expenses

     (74     (57

Other

     (9     (12
  

 

 

   

 

 

 
     (83     (69

Cash balance

in millions of euros

 

     Q1
2013
    Q1
2014
 

Beginning cash balance

     3,834        2,465   

Free cash flow

     (431     (345

Net cash flow from operating activities

     (228     (172

Net capital expenditures

     (203     (173

Acquisitions and divestments of businesses

     (11     (18

Other cash flow from investing activities

     (70     —     

Treasury shares transactions

     (222     (107

Changes in debt/other

     16        (199

Net cash flow discontinued operations

     (50     (69
  

 

 

   

 

 

 

Ending balance

     3,066        1,727   

Cash flows from operating activities

in millions of euros

 

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Financial income and expenses

 

  Financial income and expenses amounted to a net expense of EUR 69 million, a decrease of EUR 14 million compared with Q1 2013. This was mainly attributable to lower interest expenses on reduced debt.

Cash balance

 

  The Group cash balance decreased during Q1 2014 to EUR 1,727 million, largely due to a free cash outflow of EUR 345 million, which included an outflow of EUR 273 million in the form of a pension contribution related to the de-risking of the Dutch pension plan. The cash balance was also impacted by a EUR 199 million outflow mainly related to debt redemption, and the use of EUR 107 million in treasury shares transactions, primarily for our share buy-back and LTI coverage programs.

 

  In Q1 2013, the cash balance decreased to EUR 3,066 million, mainly due to a free cash outflow of EUR 431 million, which included the payment of the EUR 509 million European Commission fine. The cash balance was also impacted by the use of EUR 222 million in treasury shares transactions, primarily for our share buy-back program.

Cash flows from operating activities

 

  Operating activities resulted in a cash outflow of EUR 172 million, compared to an outflow of EUR 228 million in Q1 2013. Q1 2013 included the payment of the EUR 509 million European Commission fine. Excluding this impact, lower cash flows from operating activities in Q1 2014 were mainly due to the Dutch pension plan contribution and higher working capital requirements.
 

 

6    Q1 2014 Quarterly report


Gross capital expenditures1)

in millions of euros

 

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1)  Capital expenditures on property, plant and equipment only

Inventories

as a % of sales1)

 

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1)  Sales calculated over the preceding 12 months
2) Excludes inventories of Audio, Video, Multimedia and Accessories business

Net debt and group equity

in billions of euros

 

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Gross capital expenditures

 

  Gross capital expenditures on property, plant and equipment were EUR 31 million lower than in Q1 2013, mainly due to lower investments at Lighting and Consumer Lifestyle.

Inventories

 

  Inventory value at the end of Q1 2014 was EUR 3.4 billion and amounted to 14.9% of sales.

 

  Compared to Q1 2013, inventories as a percentage of sales improved by 0.6 percentage points, mainly driven by reductions at Healthcare.

Net debt and group equity

 

  At the end of Q1 2014, Philips had a net debt position of EUR 2.0 billion, compared to EUR 1.5 billion at the end of Q1 2013. During the quarter, the net debt position increased by EUR 554 million, largely due to a free cash outflow of EUR 345 million.

 

  Group equity decreased by EUR 202 million in the quarter to EUR 11.0 billion. The decrease was largely a result of our treasury shares transactions and pension plan contributions, partly offset by net income earned during the period.
 

 

Q1 2014 Quarterly report    7


Number of employees

in FTEs

 

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1)  Number of employees excludes discontinued operations. Discontinued operations, comprising the Audio, Video, Multimedia and Accessories business, had 1,962 employees at end of Q1 2014 (Q4 2013: 1,992; Q1 2013: 1,970).
2)  Adjusted to reflect a change in employees reported in the Consumer Lifestyle sector.

Employees

 

  The number of employees decreased by 3,809 year-on-year, including 705 due to divestments. The decrease was mainly driven by the company’s overhead reduction program and industrial footprint rationalization at Lighting

 

  The number of employees decreased by 1,784 compared to Q4 2013, largely due to reductions at Lighting and Healthcare.
 

 

8    Q1 2014 Quarterly report


Healthcare

Key data

in millions of euros unless otherwise stated

 

     Q1
2013
    Q1
2014
 

Sales

     2,127        1,966   

Sales growth

    

% nominal

     (4     (8

% comparable

     (1     (2

EBITA

     222        152   

as a % of sales

     10.4        7.7   

EBIT

     176        109   

as a % of sales

     8.3        5.5   

Net operating capital (NOC)

     7,888        7,443   

Number of employees (FTEs)

     37,270        36,506   

Sales

in millions of euros

 

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EBITA

 

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Business highlights

 

  Philips, as a leading provider of innovative healthcare solutions, and MEDSI, Russia’s largest network of private clinics, have signed a memorandum of understanding for a multi-year partnership that will provide MEDSI hospitals with the latest Philips healthcare equipment and technology, hospital management and consultancy services.

 

  Combining market-leading monitoring expertise with its life-saving defibrillator technology, Philips has launched a newly integrated defibrillator and monitor solution, Efficia DFM100, in India and Malaysia. This locally relevant solution was designed to meet the growing needs of the value segment of the healthcare market.

 

  To meet the growing demand for digital imaging solutions in growth geographies and expand access to affordable care, Philips has introduced several new imaging innovations, such as the Ingenia CX MRI and the PrimaryDiagnost DR and DuraDiagnost x-ray solutions, which deliver excellent image quality, reliability, ease of use, and efficient workflows.

 

  Recognizing Philips’ strength in providing healthcare solutions for the home, Partners HealthCare At Home, a leading Massachusetts home health provider, selected Philips as its telemonitoring partner. This further enhances Philips’ range of innovative home-based clinical programs in the areas of emergency response systems for the elderly and medication dispensing systems.

 

  Philips has enabled Box Hill Hospital in Melbourne, Australia, to extend the benefits of patient monitoring from the hospital’s critical care settings to its general wards by installing IntelliSpace Guardian patient monitors and clinical decision support tools, which provide ubiquitous non-intrusive monitoring of patients.

Financial performance

 

  Currency-comparable equipment orders showed low-single-digit growth year-on-year. Patient Care & Clinical Informatics recorded double-digit growth. Imaging Systems posted a mid-single-digit decline.
 

 

Q1 2014 Quarterly report    9


  Equipment order intake in North America showed mid-single-digit growth. Growth geographies showed a low-single-digit increase as strong growth in Latin America, Middle East & Turkey and India was partially offset by a decline in China and Russia & Central Asia. Western Europe recorded low-single-digit growth, while other mature geographies showed a double-digit decline.

 

  Healthcare comparable sales showed a low-single-digit decline year-on-year. Home Healthcare Solutions posted mid-single-digit growth, while Customer Services and Patient Care & Clinical Informatics achieved low-single-digit growth. Imaging Systems recorded a double-digit decline.

 

  Comparable sales showed low-single-digit growth in Western Europe and mid-single-digit growth in other mature geographies, while North America and growth geographies recorded a mid-single-digit decline.

 

  EBITA amounted to EUR 152 million, or 7.7% of sales, compared to EUR 222 million, or 10.4% of sales, in Q1 2013.

 

  Excluding restructuring and acquisition-related charges, EBITA amounted to EUR 173 million, or 8.8% of sales, compared to EUR 224 million, or 10.5% of sales, in Q1 2013. The decrease was mainly due to lower gross margins and the production suspension in our Cleveland facility.

 

  Net operating capital, excluding a negative currency translation effect of EUR 590 million, increased by EUR 145 million. This increase was largely driven by higher working capital.

 

  Inventories as a percentage of sales improved by 0.8 percentage points year-on-year.

 

  Compared to Q1 2013, the number of employees decreased by 764. This decrease was due to overhead reduction, industrial footprint rationalization and divestments, offset by investments in growth geographies. Compared to Q4 2013, the number of employees decreased by 502, due to overhead reduction and industrial footprint rationalization.
 

 

10    Q1 2014 Quarterly report


Miscellaneous

 

  Restructuring and acquisition-related charges in Q2 2014 are expected to total approximately EUR 5 million.

 

  As announced on January 28, 2014, we voluntarily suspended production at the Cleveland, Ohio facility. We are taking comprehensive measures to raise the efficacy of our quality management system within the Healthcare sector to Philips Excellence standards in close collaboration with industry experts. The business impact on sector EBITA, due to lower sales and extra costs, is now expected to be EUR 60 to 70 million for the year, as we anticipate that the results of mitigation efforts will be offset by currency and market headwinds.
 

 

Q1 2014 Quarterly report    11


Consumer Lifestyle*

 

* Excluding the Audio, Video, Multimedia and Accessories business

Key data

in millions of euros unless otherwise stated

 

     Q1
2013
    Q1
2014
 

Sales

     1,003        1,016   

Sales growth

    

% nominal

     9        1   

% comparable

     10        7   

EBITA

     98        108   

as a % of sales

     9.8        10.6   

EBIT

     84        96   

as a % of sales

     8.4        9.4   

Net operating capital (NOC)

     1,092        1,321   

Number of employees (FTEs)

     17,095 1)      17,103   

 

1)  Adjusted to reflect a change of reported employees

Sales

in millions of euros

 

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EBITA

 

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Business highlights

 

  Continuing the geographical expansion of Philips’ product innovations, the Philips Airfryer is now available in more than 100 countries. Philips is now the world’s number one low-fat fryer brand.

 

  Philips in India partnered with MTV to launch a male grooming and beauty campaign, challenging young Indian couples to look their best on Valentine’s Day. The campaign was activated extensively online and in thousands of retail outlets across India.

 

  Locally relevant innovations delivered market share growth in China, with strong sales of Philips Air Purifiers, Kitchen Appliances and Philips AVENT feeding solutions designed for Chinese infants. Growth was supported by expanded distribution in online and offline channels, including hundreds of new mother and child care selling points.

 

  Through impactful digital and traditional marketing, Philips outpaced the market in Central and Eastern Europe. In the Czech Republic, Philips’ successful “Answer to Every Face” digital male grooming campaign drove sales. In Poland, a dedicated sales force targeting dental professionals contributed to strong growth of Philips Sonicare.

 

  Philips’ leadership position in oral healthcare in North America was further strengthened with extended distribution of the latest high-end propositions. Philips also introduced a refreshed Philips Sonicare for Kids range, which was elected the preferred oral healthcare solution by parents who are also dental professionals.

Financial performance

 

  Consumer Lifestyle comparable sales increased by 7%. High-single-digit comparable sales growth was seen at Domestic Appliances, while Health & Wellness and Personal Care recorded mid-single-digit growth.

 

  Comparable sales showed double-digit growth in growth geographies and low-single-digit growth in mature geographies. Western Europe showed low-single-digit growth, while North America recorded a low-single-digit decline.

 

  EBITA amounted to EUR 108 million, or 10.6% of sales, compared to EUR 98 million, or 9.8% of sales, in Q1 2013.
 

 

12    Q1 2014 Quarterly report


  Excluding restructuring and acquisition-related charges, EBITA was EUR 108 million, or 10.6% of sales, compared to EUR 99 million, or 9.9% of sales, in Q1 2013. The improvement of 0.7 percentage points was largely attributable to higher gross margins.

 

  EBITA included EUR 4 million of net costs formerly reported in the Audio, Video, Multimedia and Accessories business (Q1 2013: EUR 7 million).

 

  Net operating capital, excluding a negative currency translation effect of EUR 65 million, increased by EUR 294 million year-on-year. The increase was largely driven by higher working capital and a reduction in provisions.

 

  Inventories as a percentage of sales improved by 0.1 percentage points year-on-year.

 

  The number of employees increased by 8 year-on-year, as reductions at Domestic Appliances were offset by increases at Health & Wellness. Compared to Q4 2013, the number of employees decreased by 152, the majority in North America.

Miscellaneous

 

  Restructuring and acquisition-related charges in Q2 2014 are expected to total approximately EUR 5 million.
 

 

Q1 2014 Quarterly report    13


Lighting

 

Key data

in millions of euros unless otherwise stated

 

     Q1
2013
    Q1
2014
 

Sales

     1,975        1,892   

Sales growth

    

% nominal

     (2     (4

% comparable

     0        0   

EBITA

     147        138   

as a % of sales

     7.4        7.3   

EBIT

     110        108   

as a % of sales

     5.6        5.7   

Net operating capital (NOC)

     4,664        4,484   

Number of employees (FTEs)

     49,404        45,659   

Sales

in millions of euros

 

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EBITA

 

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Business highlights

 

  Expanding its geographical footprint, Philips entered into agreements to acquire 51% of General Lighting Company (GLC) in the Kingdom of Saudi Arabia. This company will combine Philips’ expertise in LED technology and global supply base with GLC’s deep local market knowledge and strong commercial capabilities, making it the leading lighting player in the largest economy in the Middle East.

 

  Philips launched an LED 40W-equivalent transparent bulb, which is the first to mimic the look and shape of a traditional bulb using an innovative design that gives a filament-like light effect. The bulb offers perfect light distribution and is 85% more energy-efficient than incandescent bulbs.

 

  Expanding its leadership in connected lighting for the home, Philips broadened its Philips Hue portfolio. It introduced Philips Hue lux, a bright white light-only version of Philips Hue, as well as the world’s first 3D-printed luminaires and Philips Hue tap, an innovative kinetic wireless switch.

 

  To provide quality light that saves energy and costs and to improve the performance of mobile networks in dense urban areas, Philips and Ericsson are partnering to integrate mobile cellular technology into LED street lighting poles.

Financial performance

 

  Lighting comparable sales were flat year-on-year. Lumileds and Automotive achieved double-digit growth, while Light Sources & Electronics and Professional Lighting Solutions posted a low-single-digit decline and Consumer Luminaires recorded a high-single-digit decline.

 

  Excluding OEM Lumileds sales, comparable sales showed a low-single-digit increase in growth geographies and a low-single-digit decline in mature geographies.

 

  LED-based sales grew 37% compared to Q1 2013, and now represent 33% of total Lighting sales, compared to 23% in Q1 2013.

 

  EBITA amounted to EUR 138 million, or 7.3% of sales, compared to EUR 147 million, or 7.4% of sales, in Q1 2013.
 

 

14    Q1 2014 Quarterly report


  EBITA, excluding restructuring and acquisition-related charges, was EUR 171 million, or 9.0% of sales, compared to EUR 166 million, or 8.4% of sales, in Q1 2013. The year-on-year EBITA increase was driven by higher gross margins and lower overhead costs.

 

  Net operating capital, excluding a negative currency translation effect of EUR 314 million, increased by EUR 134 million year-on-year. The increase was mainly due to an increase in accounts receivable and a decrease in provisions.

 

  Inventories as a percentage of sales decreased by 0.4 percentage points year-on-year.

 

  Compared to Q1 2013, the number of employees decreased by 3,745, mainly due to rationalization of the industrial footprint. The number of employees decreased by 1,231 compared to Q4 2013.

Miscellaneous

 

  Restructuring and acquisition-related charges in Q2 2014 are expected to total approximately EUR 45 million.
 

 

Q1 2014 Quarterly report    15


Innovation, Group & Services

 

Key data

in millions of euros unless otherwise stated

 

     Q1
2013
    Q1
2014
 

Sales

     153        146   

Sales growth

    

% nominal

     (4     (5

% comparable

     (4     (10

EBITA of:

    

Group Innovation

     (30     (47

IP Royalties

     52        69   

Group and Regional Costs

     (36     (35

Accelerate! investments

     (29     (29

Pensions

     (4     (2

Service Units and Other

     (18     (40
  

 

 

   

 

 

 

EBITA

     (65     (84

EBIT

     (65     (87

Net operating capital (NOC)

     (3,675     (2,867

Number of employees (FTEs)

     12,346        13,038   

Sales

in millions of euros

 

LOGO

EBITA

in millions of euros

 

LOGO

Business highlights

 

  Philips has been recognized with an impressive total of 47 awards in the 2014 iF design awards’ product category, including an unprecedented four Gold winners: the Sonicare DiamondClean Black Edition, Lifeline GoSafe, Metronomis LED range and DesignLine LED TV.

 

  Fast Company named Philips number 2 in their 2014 ‘World’s Top 10 Most Innovative Companies in The Internet Of Things’ category. They also listed Philips as one of the top 50 most innovative companies in the world in 2014.

 

  Underlining its commitment to locally relevant innovations, Philips established an Innovation Hub for Africa in Nairobi (Kenya), which will enable the co-creation of new solutions, business models and partnerships to provide meaningful innovations and address key challenges in the continent.

 

  With a total number of 1,839 patent applications in 2013, Philips was the number three patent applicant in the world for patents filed at the European Patent Office, highlighting Philips’ commitment to innovation.

 

  We have stepped up investments in our emerging business areas, which include, among others, point of care diagnostics, digital pathology and horticulture.

Financial performance

 

  Sales decreased from EUR 153 million in Q1 2013 to EUR 146 million in Q1 2014, mainly due to lower Group Innovation income, partly offset by higher IP royalties.

 

  EBITA amounted to a net cost of EUR 84 million, compared to a net cost of EUR 65 million in Q1 2013.

 

  Excluding restructuring and acquisition-related charges, EBITA was a net cost of EUR 84 million, compared to a net cost of EUR 68 million in Q1 2013. The decrease was mainly due to higher investments in our emerging business areas and Accelerate!, notably in the transformation of our IT landscape, and the remeasurement of environmental provisions following changes in discount rates, partly offset by higher IP royalties.

 

  EBITA of Service Units and Other included EUR 13 million of net costs formerly reported in the Audio, Video, Multimedia and Accessories business (Q1 2013: EUR 18 million).
 

 

16    Q1 2014 Quarterly report


  Net operating capital, excluding a positive currency translation effect of EUR 165 million, increased by EUR 643 million year-on-year, mainly due to a decrease in pension liabilities, an increase in the value of currency hedges and a reclassification of real estate assets from the sectors to the Service Units.

 

  Compared to Q1 2013, the number of employees increased by 692, primarily driven by an increase in temporary workers in the IT Service Units as well as a shift of employees from the sectors to the Enterprise Information Management Service Unit. The number of employees increased by 101 compared to Q4 2013.

Miscellaneous

 

  Restructuring charges are not expected to be material in Q2 2014.
 

 

Q1 2014 Quarterly report    17


Additional information on Audio, Video, Multimedia and Accessories business

 

AVM&A results reconciliation

in millions of euros unless otherwise stated

 

     Q1
2013
    Q1
2014
 

EBITA

     (1     (11

Disentanglement costs

     (8     (2

Former AVM&A net costs allocated to Consumer Lifestyle

     7        4   

Former AVM&A net costs allocated to IG&S

     18        13   
  

 

 

   

 

 

 

EBIT discontinued operations

     16        4   

Financial income and expenses

     —          (2

Income taxes

     (6     (1
  

 

 

   

 

 

 

Net income (loss) of discontinued operations

     10        1   

Number of employees (FTEs)

     1,970        1,962   

The Audio, Video, Multimedia and Accessories (AVM&A) business is reported as discontinued operations in the Consolidated statements of income and Consolidated statements of cash flows. As a result, AVM&A sales and EBITA are no longer included in the Consumer Lifestyle and Group results of continuing operations. The applicable assets and liabilities of this business are reported under Assets and Liabilities classified as held for sale in the Consolidated balance sheet.

The AVM&A business operates as a stand-alone entity named WOOX Innovations. Philips is actively discussing the sale of the business with potential buyers.

The net income of discontinued operations attributable to the AVM&A business decreased from EUR 10 million in Q1 2013 to EUR 1 million in Q1 2014, due to lower operational results at WOOX Innovations, partly offset by lower income taxes.

EBITA in Q1 2014 included a net release of restructuring charges of EUR 2 million (Q1 2013: EUR 0 million).

 

 

18    Q1 2014 Quarterly report


Forward-looking statements

 

Forward-looking statements

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

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

Third-party market share data

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

Use of non-GAAP information

In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of these non-GAAP 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 2013.

Use of fair-value measurements

In presenting the Philips Group 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 are not readily available, fair values are estimated using appropriate valuation models and unobservable inputs. Such fair value estimates 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 Annual Report 2013. Independent valuations may have been obtained to support management’s determination of fair values.

All amounts are in millions of euros unless otherwise stated. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2013, unless otherwise stated.

Prior-period financials have been restated for two voluntary accounting policy changes applied as of January 1, 2014. The first voluntary accounting policy change relates to a reclassification of cost by function in the income statement. Company-wide overhead and indirect Business function costs will be brought more in line with the actual activities performed in our markets. This change has no net effect on Income from operations. The second voluntary accounting policy change relates to a change in the presentation in the cash flow statement. Up and until 2013 the cash flows

 

 

Q1 2014 Quarterly report    19


related to interest, tax and pensions were presented in a table separate from the primary consolidated statement of cash flows. The presentation change results in the separate presentation of the interest and tax cash flows in cash flow from operating activities. The pension cash flows are separately presented as part of the pension disclosures. The presentation change has no impact on the net cash flows from operating activities nor the total net cash balance as these cash flows previously used to be part of other aggregated sub lines of the primary consolidated statement of cash flows. An overview of the revised full-year 2012 and 2013 figures per quarter will be made available on the Philips website, in the Investor Relations section.

 

 

20    Q1 2014 Quarterly report


Philips quarterly statistics

all amounts in millions of euros unless otherwise stated

 

     2013     2014
     1st quarter     2nd quarter     3rd quarter     4th quarter     1st quarter     2nd quarter    3rd quarter    4th quarter

Sales

     5,258        5,654        5,618        6,799        5,020           

comparable sales growth %

     1        3        3        7        0           

Gross margin

     2,124        2,366        2,370        2,897        2,018           

as a % of sales

     40.4        41.8        42.2        42.6        40.2           

Selling expenses

     (1,215     (1,276     (1,247     (1,463     (1,196        

as a % of sales

     (23.1     (22.6     (22.2     (21.5     (23.8        

G&A expenses

     (188     (208     (221     (231     (177        

as a % of sales

     (3.6     (3.7     (3.9     (3.4     (3.5        

R&D expenses

     (434     (426     (449     (468     (420        

as a % of sales

     (8.3     (7.5     (8.0     (6.9     (8.4        

EBIT

     305        509        464        713        226           

as a % of sales

     5.8        9.0        8.3        10.5        4.5           

EBITA

     402        603        562        884        314           

as a % of sales

     7.6        10.7        10.0        13.0        6.3           

Net income

     162        317        281        412        137           

Net income attributable to shareholders

     161        317        282        409        138           

Net income - shareholders per common share in euros - diluted

     0.17        0.35        0.31        0.44        0.15           

 

Q1 2014 Quarterly report    21


Philips quarterly statistics (continued)

all amounts in millions of euros unless otherwise stated

 

     2013     2014
     January-
March
    January-
June
    January-
September
    January-
December
    January-
March
    January-
June
   January-
September
   January-
December

Sales

     5,258        10,912        16,530        23,329        5,020           

comparable sales growth %

     1        2        2        3        0           

Gross margin

     2,124        4,490        6,860        9,757        2,018           

as a % of sales

     40.4        41.1        41.5        41.8        40.2           

Selling expenses

     (1,215     (2,491     (3,738     (5,201     (1,196        

as a % of sales

     (23.1     (22.8     (22.6     (22.3     (23.8        

G&A expenses

     (188     (396     (617     (848     (177        

as a % of sales

     (3.6     (3.6     (3.7     (3.6     (3.5        

R&D expenses

     (434     (860     (1,309     (1,777     (420        

as a % sales

     (8.3     (7.9     (7.9     (7.6     (8.4        

EBIT

     305        814        1,278        1,991        226           

as a % of sales

     5.8        7.5        7.7        8.5        4.5           

EBITA

     402        1,005        1,567        2,451        314           

as a % of sales

     7.6        9.2        9.5        10.5        6.3           

Net income

     162        479        760        1,172        137           

Net income attributable to shareholders

     161        478        760        1169        138           

Net income - shareholders per common share in euros - diluted

     0.17        0.52        0.83        1.27        0.15           

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

     5.8        9.0        9.4        10.6        5.8           
     period ended 2013     period ended 2014

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

     905,381        913,874        915,095        913,338        913,485           

Shareholders’ equity per common share in euros

     12.33        11.78        11.93        12.28        12.06           

Inventories as a % of sales1)

     15.5        15.7        16.5        13.9        14.9           

Inventories excluding discontinued operations

     3,629        3,696        3,832        3,239        3,448           

Net debt : group equity ratio

     12:88        16:84        16:84        11:89        15:85           

Net operating capital

     9,969        10,184        10,249        10,238        10,381           

Total employees2)

     118,085        117,369        115,858        116,082        114,268           

of which discontinued operations

     1,970        1,958        1,940        1,992        1,962           

 

1) sales is calculated over the preceding 12 months
2) Adjusted to reflect a change of reported employees in 2013 in sector Consumer Lifestyle

 

22    Q1 2014 Quarterly report


Condensed consolidated statements of income

in millions of euros unless otherwise stated

 

     January to March  
     2013     2014  

Sales

     5,258        5,020   

Cost of sales

     (3,134     (3,002
  

 

 

   

 

 

 

Gross margin

     2,124        2,018   

Selling expenses

     (1,215     (1,196

General and administrative expenses

     (188     (177

Research and development expenses

     (434     (420

Impairment of goodwill

     —          (3

Other business income

     26        10   

Other business expenses

     (8     (6
  

 

 

   

 

 

 

Income from operations

     305        226   

Financial income

     18        16   

Financial expenses

     (101     (85
  

 

 

   

 

 

 

Income before taxes

     222        157   

Income tax expense

     (69     (39
  

 

 

   

 

 

 

Income after taxes

     153        118   

Results relating to investments in associates

     1        21   
  

 

 

   

 

 

 

Net income from continuing operations

     154        139   

Discontinued operations - net of income tax

     8        (2
  

 

 

   

 

 

 

Net income

     162        137   

Attribution of net income for the period

    

Net income attributable to shareholders

     161        138   

Net income attributable to non-controlling interests

     1        (1

Earnings per common share attributable to shareholders

    

Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands):

    

- basic

     909,723 1)      913,990   

- diluted

     920,624 1)      925,674   

Net income attributable to shareholders per common share in euros:

    

- basic

     0.18        0.15   

- diluted

     0.17        0.15   

 

1)  Adjusted to make 2013 comparable for the elective share dividend premium (273 thousand) issued in June 2013

 

Q1 2014 Quarterly report    23


Condensed consolidated balance sheets

in millions of euros unless otherwise stated

 

     March 31,      December 31,      March 30,  
     2013      2013      2014  

Non-current assets:

        

Property, plant and equipment

     2,971         2,780         2,709   

Goodwill

     7,028         6,504         6,502   

Intangible assets excluding goodwill

     3,698         3,262         3,171   

Non-current receivables

     190         144         148   

Investments in associates

     176         161         182   

Other non-current financial assets

     571         496         487   

Deferred tax assets

     1,931         1,675         1,789   

Other non-current assets

     78         63         57   
  

 

 

    

 

 

    

 

 

 

Total non-current assets

     16,643         15,085         15,045   

Current assets:

        

Inventories

     3,631         3,240         3,449   

Other current financial assets

     1         10         11   

Other current assets

     431         354         414   

Derivative financial assets

     142         150         107   

Income tax receivable

     87         70         70   

Receivables

     4,278         4,678         4,612   

Assets classified as held for sale

     447         507         539   

Cash and cash equivalents

     3,066         2,465         1,727   
  

 

 

    

 

 

    

 

 

 

Total current assets

     12,083         11,474         10,929   
  

 

 

    

 

 

    

 

 

 

Total assets

     28,726         26,559         25,974   

Shareholders’ equity

     11,160         11,214         11,015   

Non-controlling interests

     37         13         10   
  

 

 

    

 

 

    

 

 

 

Group equity

     11,197         11,227         11,025   

Non-current liabilities:

        

Long-term debt

     3,560         3,309         3,311   

Long-term provisions

     2,074         1,903         1,876   

Deferred tax liabilities

     79         76         55   

Other non-current liabilities

     1,983         1,568         1,503   
  

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     7,696         6,856         6,745   

Current liabilities:

        

Short-term debt

     1,042         592         406   

Derivative financial liabilities

     569         368         359   

Income tax payable

     165         143         121   

Accounts and notes payable

     2,904         2,462         2,714   

Accrued liabilities

     2,935         2,830         2,518   

Short-term provisions

     751         651         644   

Liabilities directly associated with assets held for sale

     283         348         319   

Other current liabilities

     1,184         1,082         1,123   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     9,833         8,476         8,204   
  

 

 

    

 

 

    

 

 

 

Total liabilities and group equity

     28,726         26,559         25,974   

 

24    Q1 2014 Quarterly report


Condensed consolidated statements of cash flows

in millions of euros

 

     1st quarter  
     2013     2014  

Cash flows from operating activities:

    

Net income (loss)

     162        137   

Result of discontinued operations - net of income tax

     (8     2   

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

    

Depreciation, amortization, and impairments of fixed assets

     305        300   

Impairment of goodwill and other non-current financial assets

     1        13   

Net gain on sale of assets

     (4     (6

Interest income

     (10     (8

Interest expense on debt, borrowings and other liabilities

     66        51   

Income tax expense

     69        39   

Results relating to investments in associates

     (2     (21

Increase in working capital:

     (397     (125

Decrease in receivables and other current assets

     128        34   

Increase in inventories

     (205     (242

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

     (320     83   

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

     (36     (371

Decrease in provisions

     (98     (18

Other items

     (40     23   

Interest paid

     (102     (89

Interest received

     9        8   

Income taxes paid

     (143     (107
  

 

 

   

 

 

 

Net cash used for operating activities

     (228     (172

Cash flows from investing activities:

    

Net capital expenditures

     (203     (173

Purchase of intangible assets

     (2     (11

Expenditures on development assets

     (80     (74

Capital expenditures on property, plant and equipment

     (124     (93

Proceeds from sale of property, plant and equipment

     3        5   

Cash from (to) derivatives and current financial assets

     (72     2   

Purchase of other non-current financial assets

     —          (4

Proceeds from other non-current financial assets

     2        2   

Purchase of businesses, net of cash acquired

     (10     (17

Net proceeds from sale of interests in businesses

     (1     (1
  

 

 

   

 

 

 

Net cash used for investing activities

     (284     (191

Cash flows from financing activities:

    

Proceeds from issuance (payments) of short-term debt

     (19     78   

Principal payments on long-term debt

     (22     (273

Proceeds from issuance of long-term debt

     17        14   

Treasury shares transactions

     (222     (107
  

 

 

   

 

 

 

Net cash used for financing activities

     (246     (288

Net cash used for continuing operations

     (758     (651

 

Q1 2014 Quarterly report    25


     1st quarter  
     2013     2014  

Cash flows from discontinued operations:

    

Net cash used for operating activities

     (50     (69
  

 

 

   

 

 

 

Net cash used for discontinued operations

     (50     (69

Net cash used for continuing and discontinued operations

     (808     (720

Effect of change in exchange rates on cash and cash equivalents

     40        (18

Cash and cash equivalents at the beginning of the period

     3,834        2,465   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     3,066        1,727   

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.

 

26    Q1 2014 Quarterly report


Condensed consolidated statement of changes in equity

in millions of euros

 

   

common

shares

    capital
in
excess
of par
value
    retained
earnings
    revaluation
reserve
    currency
translation
differences
    available
-for-sale
financial
assets
    cash
flow
hedges
    treasury
shares
at cost
    total
share-
holders’
equity
    non-
controlling
interests
    total
equity
 

January-March 2014

                     

Balance as of December 31, 2013

    188        1,796        10,415        23        (569     55        24        (718     11,214        13        11,227   

Net income

        138                  138        (1     137   

Other comprehensive income, net of tax

        (211     (2     (16     (2     (9       (240       (240
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

        (73     (2     (16     (2     (9       (102     (1     (103

Movement non-controlling interest

        —                    —          (2     (2

Purchase of treasury shares

                  (178     (178       (178

Re-issuance of treasury shares

      (99     (46             209        64          64   

Share-based compensation plans

      19                    19          19   

Income tax share-based compensation plans

      (2                 (2       (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other equity movements

      (82     (46             31        (97     (2     (99
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 30, 2014

    188        1,714        10,296        21        (585     53        15        (687     11,015        10        11,025   

 

Q1 2014 Quarterly report    27


Sectors

in millions of euros unless otherwise stated

Sales and income from operations

 

            January to March         
     2013      2014  
     sales      income from operations      sales      income from operations  
            as a % of sales             as a % of sales  

Healthcare

     2,127         176        8.3         1,966         109        5.5   

Consumer Lifestyle

     1,003         84        8.4         1,016         96        9.4   

Lighting

     1,975         110        5.6         1,892         108        5.7   

Innovation, Group & Services

     153         (65     —           146         (87     —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Philips Group

     5,258         305        5.8         5,020         226        4.5   

 

28    Q1 2014 Quarterly report


Sectors and main countries

in millions of euros

Sales, total assets and total liabilities excluding debt

 

     sales      total assets      total liabilities excluding debt  
     January to March      March 31,      March 30,      March 31,      March 30,  
     2013      2014      2013      2014      2013      2014  

Healthcare

     2,127         1,966         11,371         10,512         3,395         2,983   

Consumer Lifestyle

     1,003         1,016         2,837         2,830         1,745         1,509   

Lighting

     1,975         1,892         7,163         6,719         2,478         2,215   

Innovation, Group & Services

     153         146         6,908         5,374         3,530         4,206   
        

 

 

    

 

 

    

 

 

    

 

 

 
           28,279         25,435         11,148         10,913   

Assets and liabilities classified as held for sale

           447         539         283         319   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Philips Group

     5,258         5,020         28,726         25,974         11,431         11,232   

Sales and tangible and intangible assets

 

     sales      tangible and intangible assets1)  
     January to March      March 31,      March 30,  
     2013      2014      2013      2014  

Netherlands

     146         138         874         895   

United States

     1,506         1,404         8,135         7,305   

China

     607         639         1,141         1,043   

Germany

     310         306         274         285   

Japan

     307         270         495         410   

France

     213         198         88         77   

United Kingdom

     170         162         578         569   

Other countries

     1,999         1,903         2,112         1,798   
  

 

 

    

 

 

    

 

 

    

 

 

 

Philips Group

     5,258         5,020         13,697         12,382   

 

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

 

Q1 2014 Quarterly report    29


Pension costs and cash flows

in millions of euros

Specification of pension costs

 

     January to March  
     2013     2014  
     Netherlands     other      total     Netherlands     other      total  

Defined-benefit plans

              

Pensions

              

Current service cost

     48        20         68        45        18         63   

Interest expense

     —          16         16        —          14         14   

Interest income

     (1     —           (1     (4     —           (4
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total

     47        36         83        41        32         73   

of which discontinued operations

     1        —           1        —          —           —     

Retiree Medical

              

Current service cost

     —          1         1        —          —           —     

Interest expense

     —          3         3        —          3         3   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total

     —          4         4        —          3         3   

Defined-contribution plans

              

Cost

     2        40         42        2        37         39   

Pension cash flows

 

     1st quarter  
     2013     2014  

Contributions and benefits paid by the Company

     (198     (478

 

30    Q1 2014 Quarterly report


Reconciliation of non-GAAP performance measures

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 %

 

     January to March  
     comparable growth     currency effects     consolidation changes     nominal growth  

2014 versus 2013

        

Healthcare

     (2.1     (5.0     (0.5     (7.6

Consumer Lifestyle

     6.5        (5.2     0.0        1.3   

Lighting

     0.4        (4.6     0.0        (4.2

Innovation, Group & Services

     (10.4     (0.5     6.3        (4.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Philips Group

     0.2        (4.7     0.0        (4.5

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

 

     January to March  
     Income from
operations (or EBIT)
    Amortization of
intangibles
    Impairment of
goodwill
    EBITA (or Adjusted
income from
operations)
 

2014

        

Healthcare

     109        (42     (1     152   

Consumer Lifestyle

     96        (12     —          108   

Lighting

     108        (28     (2     138   

Innovation, Group & Services

     (87     (3     —          (84
  

 

 

   

 

 

   

 

 

   

 

 

 

Philips Group

     226        (85     (3     314   

2013

        

Healthcare

     176        (46     —          222   

Consumer Lifestyle

     84        (14     —          98   

Lighting

     110        (37     —          147   

Innovation, Group & Services

     (65     —          —          (65
  

 

 

   

 

 

   

 

 

   

 

 

 

Philips Group

     305        (97     —          402   

 

1)  Excluding amortization of software and product development

 

Q1 2014 Quarterly report    31


Reconciliation of non-GAAP performance measures (continued)

in millions of euros

 

Net operating capital to total assets

 

     Philips Group      Healthcare      Consumer
Lifestyle
     Lighting      IG&S  

March 30, 2014

              

Net operating capital (NOC)

     10,381         7,443         1,321         4,484         (2,867

Exclude liabilities comprised in NOC:

              

- payables/liabilities

     8,338         2,551         1,251         1,671         2,865   

- intercompany accounts

     —           137         72         101         (310

- provisions

     2,520         295         186         443         1,596   

Include assets not comprised in NOC:

              

- investments in associates

     182         86         —           20         76   

- other current financial assets

     11         —           —           —           11   

- other non-current financial assets

     487         —           —           —           487   

- deferred tax assets

     1,789         —           —           —           1,789   

- cash and cash equivalents

     1,727         —           —           —           1,727   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     25,435         10,512         2,830         6,719         5,374   

Assets classified as held for sale

     539               
  

 

 

             

Total assets

     25,974               

March 31, 2013

              

Net operating capital (NOC)

     9,969         7,888         1,092         4,664         (3,675

Exclude liabilities comprised in NOC:

              

- payables/liabilities

     9,740         2,916         1,424         1,780         3,620   

- intercompany accounts

     —           149         79         144         (372

- provisions

     2,825         330         242         554         1,699   

Include assets not comprised in NOC:

              

- investments in associates

     176         88         —           21         67   

- other current financial assets

     1         —           —           —           1   

- other non-current financial assets

     571         —           —           —           571   

- deferred tax assets

     1,931         —           —           —           1,931   

- cash and cash equivalents

     3,066         —           —           —           3,066   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     28,279         11,371         2,837         7,163         6,908   

Assets classified as held for sale

     447               
  

 

 

             

Total assets

     28,726               

 

32    Q1 2014 Quarterly report


Reconciliation of non-GAAP performance measures (continued)

in millions of euros

 

Composition of net debt to group equity

 

     March 31,
2013
     March 30,
2014
 

Long-term debt

     3,560         3,311   

Short-term debt

     1,042         406   
  

 

 

    

 

 

 

Total debt

     4,602         3,717   

Cash and cash equivalents

     3,066         1,727   
  

 

 

    

 

 

 

Net debt (total debt less cash and cash equivalents)

     1,536         1,990   

Shareholders’ equity

     11,160         11,015   

Non-controlling interests

     37         10   
  

 

 

    

 

 

 

Group equity

     11,197         11,025   

Net debt and group equity

     12,733         13,015   

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

     12         15   

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

     88         85   

Composition of cash flows

 

     1st quarter  
     2013     2014  

Cash flows used for operating activities

     (228     (172

Cash flows used for investing activities

     (284     (191
  

 

 

   

 

 

 

Cash flows before financing activities

     (512     (363

Cash flows used for operating activities

     (228     (172

Net capital expenditures:

     (203     (173

Purchase of intangible assets

     (2     (11

Expenditures on development assets

     (80     (74

Capital expenditures on property, plant and equipment

     (124     (93

Proceeds from sale of property, plant and equipment

     3        5   
  

 

 

   

 

 

 

Free cash flows

     (431     (345

 

Q1 2014 Quarterly report    33


 

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