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

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          þ                         Form 40-F          o

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

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

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          o                         No          þ

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

 

 

This report comprises a copy of the Quarterly Report of the Philips Group for the three months ended March 31, 2008 and a copy of each of following press releases entitled:

•		“Philips to acquire Northern Ireland based healthcare IT company TOMCAT Systems”, dated March 26, 2008;
•		“Philips to establish a manufacturing joint venture for energy-saving light bulbs in Southern Africa”, dated March 27, 2008;
•		“Philips notifies Dutch Authority for the Financial Markets of holding over 5% of its own shares”, dated March 31, 2008;
•		“Philips takes decisive steps to improve profitability of its television business”, dated April 8, 2008;
•		“Philips to acquire Chinese patient monitoring company Shenzhen Goldway Industrial, Inc.”, dated April 11, 2008.

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 15^th day of April 2008.

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 outlook paragraph in this report. 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, forward-looking 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 forward-looking 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, 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.

Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as specialized 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-US GAAP information

In presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certain non-US GAAP financial measures. These non-US GAAP financial measures should not be viewed in isolation as alternatives to the equivalent US GAAP measure(s) and should be used in conjunction with the most directly comparable US GAAP measure(s). A discussion of the non-US GAAP measures included in this document and a reconciliation of such measures to the most directly comparable US GAAP measure(s) are contained in this document.

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 a readily determinable market value does not exist, fair values are estimated using valuation models which we believe are appropriate for their purpose. They require management to make significant assumptions with respect to future developments which are inherently uncertain and may therefore deviate from actual developments. In certain cases, independent valuations are 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 US GAAP, unless otherwise stated.

Updated to reflect the new sector reporting structure and to reflect changes in accounting policies for pensions under International Financial Reporting Standards (IFRS).

Philips reports EBITA of EUR 265 million, driven by Healthcare and Lighting

•

Group sales increase to EUR 5,965 million; growth in Healthcare and Lighting offset by lower television sales.

•

Ongoing growth at Healthcare with 5% higher sales; 9% higher equipment order intake, including double-digit growth in North America.

•

Continuing strong growth of 17% in emerging markets.

•

Decisive action taken to improve the profitability of the television business through an alliance with Funai in North America and optimization of the global supply base.

•

Net income of EUR 219 million, compared with EUR 875 million in Q1 2007, when EUR 650 million higher gains on the sale of stakes boosted the bottom line.

•

Vision 2010 EBITA target specified and upgraded to 10-11%.

Gerard Kleisterlee,
President and CEO of Royal Philips Electronics:

“We look back on a quarter with essentially good financial performance across most of our businesses. Unfortunately our results are clouded, more than we like, by the adverse situation in our TV business, significantly lower incidental license income and some acquisition-related charges impacting EBITA.

I’m particularly pleased about the continuing progress in our Healthcare sector. Together with the solid performance in Lighting and the non-TV businesses in Consumer Lifestyle, this underscores the robustness of our business portfolio in times of economic headwind. Also our excellent growth in emerging markets is a confirmation of the benefits of our good geographic spread. With respect to our TV business we took the decisive action we had promised and I compliment our Consumer Lifestyle team for subsequently coming up quickly with a value-creating solution.

With the integration of Respironics, VISICU and Genlyte having started and our current share buy-back program in full swing, we are also in a position to reaffirm our confidence in achieving our Vision 2010 target of more than doubling our EBITA per share and to upgrade our EBITA margin target to 10 — 11%.

I am confident that 2008 will be another year of progress for Philips. We will continue to further optimize our portfolio, improve productivity and offer our customers exciting new products. We will certainly also take additional measures to deal with the effects of softening economies where needed in order to keep our margins where we want them.”

Philips Group

Net income
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Sales			5,930				5,965
EBITA			370				265
as a % of sales			6.2				4.4
EBIT			312				175
as a % of sales			5.3				2.9
Financial income and expenses			681				46
Income tax expense			(92	)			(49	)
Results equity-accounted investees			(49	)			60
Income from continuing operations			852				232
Discontinued operations			23				(13	)
Net income			875				219
Per common share (in euros) — basic			0.80				0.21

Sales by sector
in millions of euros unless otherwise stated

										% change
		Q1				Q1								compa-
		2007				2008				nominal				rable
Healthcare			1,431				1,474				3				5
Lighting			1,474				1,711				16				3
Consumer Lifestyle			2,816				2,662				(5	)			—
I&EB			160				79				(51	)			(22	)
GM&S			49				39				(20	)			(22	)
Philips Group			5,930				5,965				1				1

Highlights in the quarter

Net income

•

The decline in income from continuing operations compared to Q1 2007 was attributable to lower year-on-year gains on the sale of stakes. Q1 2007 included a net gain of EUR 733 million from the partial sale of our shareholding in TSMC, whereas Q1 2008 included a EUR 83 million gain on the partial sale of the shareholding in LG Display. The revaluation result recorded on the options related to the TPV convertible bonds was EUR 21 million lower than in Q1 2007.

•

EBITA was EUR 105 million lower than in Q1 2007, entirely due to a EUR 44 million reduction in earnings at Connected Displays, EUR 38 million of acquisition-related charges in Healthcare and Lighting, and a EUR 52 million reduction in license income, mainly incidental past-use optical license revenues.

•

Results relating to equity-accounted investees increased by EUR 109 million year-on-year, entirely driven by improved operational results at LG Display.

•

The lower income from discontinued operations was attributable to final settlements in Q1 2007 relating to the Semiconductors transaction.

Sales by sector

•

Sales in the quarter totaled EUR 5,965 million, a nominal increase of 1% compared to Q1 2007. Excluding portfolio changes (4%) and a negative currency impact, comparable sales also grew by 1%, driven by Healthcare and Lighting. Comparable sales at Consumer Lifestyle were flat year-on-year.

•

Healthcare sales grew 5% on a comparable basis, mainly driven by growth in Ultrasound, Cardiac Care, Customer Services and Patient Monitoring. Comparable sales at Imaging Systems were at the same level as in Q1 2007.

•

Lighting sales showed comparable growth of 3%, driven by growth in Lamps, Lighting Electronics and Professional Luminaires, partly offset by lower sales at Special Lighting Applications and at Lumileds due to a product recall earlier in the quarter.

•

Consumer Lifestyle sales were on par with Q1 2007 on a comparable basis. Solid growth was seen in Domestic Appliances, Shaving & Beauty and Home Networks, offset by lower sales at Connected Displays (mainly consumer television) and Video & Multimedia Applications.

•

Sales in I&EB decreased 22% on a comparable basis, mainly due to a decline in license revenues.

Sales by region
in millions of euros unless otherwise stated 

										% change
		Q1				Q1								compa-
		2007				2008				nominal				rable
Europe/Africa			2,797				2,841				2				3
North America			1,641				1,645				—				(9	)
Latin America			367				412				12				15
Asia Pacific			1,125				1,067				(5	)			4
Philips Group			5,930				5,965				1				1

Sales by region

•

Solid sales growth was visible across the emerging markets, led by Latin America, Eastern Europe, China and India, all of which recorded double-digit growth. Sales in Japan were lower than in Q1 2007 due to softer demand for Healthcare.

•

In North America, comparable sales declined by 9%, largely due to lower sales at Connected Displays.

•

Solid growth in Western Europe was moderated by lower sales at Connected Displays, which tempered the impact of growth in other businesses.

EBITA
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Healthcare			119				121
Lighting			186				200
Consumer Lifestyle			141				77
Innovation & Emerging Businesses			(31	)			(68	)
Group Management & Services			(45	)			(65	)
Philips Group			370				265
as a % of sales			6.2				4.4

EBITA
as a % of sales

		Q1				Q1
		2007				2008
Healthcare			8.3				8.2
Lighting			12.6				11.7
Consumer Lifestyle			5.0				2.9
Innovation & Emerging Businesses			(19.4	)			(86.1	)
Group Management & Services			(91.8	)			(166.7	)
Philips Group			6.2				4.4

EBIT
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Healthcare			73				77
Lighting			177				158
Consumer Lifestyle			138				73
Innovation & Emerging Businesses			(31	)			(68	)
Group Management & Services			(45	)			(65	)
Philips Group			312				175
as a % of sales			5.3				2.9

Earnings

•

EBITA amounted to EUR 265 million, or 4.4% of sales, EUR 105 million lower than in Q1 2007. Increased earnings at Lighting and Healthcare were more than offset by lower EBITA at Consumer Lifestyle, which saw a decline of EUR 64 million compared to Q1 2007, entirely due to Connected Displays and Optical Licenses.

•

Healthcare EBITA was slightly above Q1 2007 at EUR 121 million, or 8.2% of sales, including acquisition-related charges of approximately EUR 19 million.

•

Lighting EBITA increased by EUR 14 million to EUR 200 million, including acquisition-related charges of EUR 19 million.

•

Consumer Lifestyle EBITA declined by EUR 64 million to EUR 77 million, or 2.9% of sales. A EUR 44 million reduction in Connected Displays’ EBITA and EUR 30 million lower past-use optical license revenue more than offset moderate improvements in the rest of the business.

•

I&EB EBITA declined by EUR 37 million compared to Q1 2007, mainly due to EUR 20 million lower IP license revenues and a loss of EUR 13 million on the divestment of HTP Optics.

•

GM&S EBITA was EUR 20 million lower compared to the corresponding period of 2007, mainly due to pension-related costs and a different year-on-year spending pattern in corporate costs.

Financial income and expenses
in millions of euros

		Q1				Q1
		2007				2008
Interest expenses, net			(13	)			(5	)
TSMC sale of securities			733				—
LG Display sale of securities			—				83
TPV option fair-value adjustment			(5	)			(26	)
Other			(34	)			(6	)
			681				46

Financial income and expenses

•

As a result of a higher average net cash position, net interest expenses were lower than in Q1 2007.

•

The sale of a further stake in LG Display yielded a net gain of EUR 83 million. The fair-value adjustment of the TPV bond options resulted in a loss of EUR 26 million.

•

Q1 2007 included a EUR 733 million gain on the sale of shares in TSMC, partly offset by a EUR 36 million loss on the market-value adjustment of JDS Uniphase.

Results relating to equity-accounted investees
in millions of euros

		Q1				Q1
		2007				2008
LG Display			(47	)			66
Other			(2	)			(6	)
			(49	)			60

Results relating to equity-accounted investees

•

Results relating to equity-accounted investees went from a EUR 49 million loss in Q1 2007 to a profit of EUR 60 million, entirely driven by improved operational results at LG Display. Effective March 1, Philips ceased equity accounting and going forward will account for its remaining stake in LG Display on a fair-value basis.

Cash balance
in millions of euros

		Q1				Q1
		2007				2008
Cash of continuing operations			5,886				8,769
Cash of discontinued operations			137				108
Beginning balance			6,023				8,877
Net cash from operating activities			(194	)			(574	)
Gross capital expenditures			(171	)			(176	)
Acquisitions/divestments			(487	)			(5,213	)
Other cash from investing activities			1,136				925
Repurchase of treasury shares			(306	)			(967	)
Changes in debt/other			(12	)			1,904
Net cash flow discontinued operations			(83	)			(21	)
Ending balance			5,906				4,755
Less cash of discontinued operations			127				98
Cash of continuing operations			5,779				4,657

Cash balance

•

The Group’s cash balance declined by EUR 4.1 billion as a result of the EUR 5.2 billion cash payments for acquisitions (Respironics, Genlyte and VISICU) and EUR 1.0 billion in share repurchases. Cash required for operating activities was some EUR 380 million higher than in Q1 2007. The issuance of bonds led to a cash inflow of EUR 2.0 billion, whereas the sale of 24 million shares in LG Display yielded cash proceeds of EUR 670 million.

•

Q1 2007’s cash balance declined by EUR 117 million, as the acquisition of PLI (EUR 561 million), share repurchases of EUR 306 million and free gross cash flow requirements (EUR 365 million) were partly offset by EUR 1.1 billion receipts from the sale of shares in TSMC.

Cash flows from operating activities

•

Cash required for operating activities was EUR 380 million higher than in Q1 2007, mainly caused by higher working capital and by last year’s sale of EUR 182 million of TSMC stock received as a dividend. Higher working capital requirements were mainly visible in the Consumer Lifestyle sector (principally inventories in Connected Displays) and in Healthcare (mainly accounts receivable due to a temporary delay in collection on the back of a change in IT systems).

Gross capital expenditures (PPE*)

•

Gross capital expenditures declined from EUR 152 million in Q1 2007 to EUR 148 million in Q1 2008. Expenditures were lower across all sectors with the exception of Lighting, where the inclusion of PLI and Genlyte led to higher investments compared to Q1 2007.

Inventories

•

As a percentage of sales, inventories increased from 11.7% in Q1 2007 to 13.9%. Adjusting for the upward impact of recent acquisitions, inventories would have ended Q1 at a level of 12.9% of sales. The increase compared to Q1 2007 centered on Healthcare (Imaging and Service inventories) and Consumer Lifestyle (Connected Displays).

Net debt and group equity

•

At the end of Q1, the Philips Group had net debt of EUR 0.7 billion, compared to a net cash position of EUR 5.2 billion at the beginning of the year.

•

The increase in net debt was mainly attributable to acquisition-related cash outflows totaling EUR 5.2 billion for Respironics, Genlyte and VISICU, as well as a further share repurchase of EUR 1.0 billion. The sale of 24 million shares in LG Display generated EUR 0.7 billion cash proceeds.

•

The EUR 1.4 billion reduction in equity is mainly the result of the EUR 1.0 billion repurchase of shares and the EUR 0.7 billion dividend payable, partially offset by the EUR 0.2 billion of net income.

•

Early March 2008, Philips placed USD 3.1 billion worth of Senior notes in order to refinance maturing debt.

Employment

•

Compared to Q4 2007, the increase in the number of employees includes an additional 11,966 from the recently completed acquisitions of Genlyte, VISICU and Respironics, partly offset by an employee reduction at Consumer Lifestyle and the divestment of HTP Optics in Q1 2008.

Healthcare

Key data
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Sales			1,431				1,474
Sales growth
% nominal			3				3
% comparable			4				5
EBITA			119				121
as a % of sales			8.3				8.2
EBIT			73				77
as a % of sales			5.1				5.2
Net operating capital (NOC)			4,590				8,331
Number of employees (FTEs)			27,204				34,645

Business highlights

•

Strengthening its position in the fast-growing Chinese healthcare market, Philips closed a EUR 25 million deal with leading Chinese wholesaler Ascent Profit to sell digital radiography systems, and established a 7-year partnership with West China Hospital to jointly develop imaging procedures.

•

Philips announced two strategic acquisitions: Shenzhen Goldway Industrial in China, principally to strengthen its position in this key emerging market; and TOMCAT Systems in Northern Ireland, to expand the Healthcare Informatics business unit.

•

Philips completed the installation of its 50th Ambient Experience suite, at Fairview Hospital in Cleveland, Ohio, following other installations in various countries including the US, Saudi Arabia and Germany.

Philips completed the acquisition of Respironics, the global leader in Obstructive Sleep Apnea treatment. Effective March 10, 2008, Respironics forms the centerpiece of Philips’ Home Healthcare portfolio.

Financial performance

•

Equipment order intake grew 9% on a currency-comparable basis compared to Q1 2007. Imaging Systems showed double-digit growth in North America, driven mainly by Magnetic Resonance, Nuclear Medicine and Cardiovascular X-Ray.

•

Comparable sales grew 5% year-on-year thanks to strong growth in Ultrasound, Cardiac Care, Patient Monitoring and Customer Services. The impact of the growth of these businesses was moderated by a weaker performance at Imaging Systems, which — despite growth in some key modalities — saw flat sales overall.

•

EBITA amounted to EUR 121 million, or 8.2% of sales, including EUR 19 million of integration and acquisition-related charges, mainly for Respironics, which reduced profitability by 1.3%. Higher earnings were seen in Ultrasound, Patient Monitoring and Customer Services, mainly driven by margin improvements and cost reductions, partially offset by lower earnings at Imaging Systems.

•

Net operating capital increased by EUR 3.7 billion compared to Q1 2007, largely due to the acquisitions and a temporary increase in receivables.

Looking ahead

•

For the full year 2008, acquisition and integration charges related to Respironics, VISICU and Emergin are expected to negatively impact EBITA by approximately EUR 100 million, of which EUR 40 million in Q2.

Lighting

Key data
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Sales			1,474				1,711
Sales growth
% nominal			10				16
% comparable			8				3
EBITA			186				200
as a % of sales			12.6				11.7
EBIT			177				158
as a % of sales			12.0				9.2
Net operating capital (NOC)			3,441				5,999
Number of employees (FTEs)			53,308				60,866

Business highlights

•		At the Light + Building Fair held in Frankfurt, Germany, in early April, Philips presented a range of LED-based innovations for general illumination, especially for the home, offices, streets, the hospitality sector and shops.
•		Philips announced that it plans to participate in a joint venture to set up a manufacturing facility and recycling plant for energy-saving compact fluorescent lamps in Lesotho, Southern Africa.
•		Philips officially opened its Automotive Lighting Application Center at the Philips Innovation Campus in Shanghai, China. This center studies local needs in automotive lighting in order to provide customized support and speed up the introduction of the latest lighting technologies into the fast-growing local markets.
•		Philips announced the completion of the acquisition of Genlyte, one of the leading North American luminaire manufacturers, which will help to further strengthen its leadership position in solid-state lighting.

Financial performance

•		Sales amounted to EUR 1,711 million — on a comparable basis 3% higher than in Q1 2007 — supported by strong growth of energy-efficient lighting solutions and growth in emerging markets, notably China, India and Latin America. This growth was tempered by lower sales in UHP, backlighting and Lumileds, the latter having executed a product recall earlier in the quarter.
•		The recent strategic acquisitions of Genlyte, Color Kinetics, LTI and PLI all contributed positively to both sales and earnings — in line with expectations.
•		EBITA increased by EUR 14 million year-on-year — albeit with increased spending on solid-state lighting solutions and temporary softness in Western European markets — and included restructuring, acquisition-related and other incidental charges amounting to EUR 35 million. Q1 2007 included charges totaling EUR 34 million.
•		The increase in both net operating capital and employees is mainly related to the acquisitions of Genlyte and Color Kinetics.

Looking ahead

•

Restructuring and acquisition-related charges are expected to amount to approximately EUR 20 million in Q2 2008.

Consumer Lifestyle

Key data
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Sales			2,816				2,662
of which Connected Displays			1,293				1,227
Sales growth
% nominal			(4	)			(5	)
% comparable			(2	)			—
Sales growth excl. Connected Displays
% nominal			6				(6	)
% comparable			6				—
EBITA			141				77
of which Connected Displays			(51	)			(95	)
as a % of sales			5.0				2.9
EBIT			138				73
of which Connected Displays			(51	)			(95	)
as a % of sales			4.9				2.7
Net operating capital (NOC)			1,337				1,398
of which Connected Displays			43				28
Number of employees (FTEs)			24,009				21,868
of which Connected Displays			7,329				6,720

Business highlights

•		Philips intends to enter into a 5-year licensing agreement under which Funai will assume the sourcing, distribution, marketing and sales of all Philips’ consumer television activities in the US and Canada, effective September 2008.
•		In March, Philips sold its one-millionth Whole Fruit Juicer, underscoring the ongoing success of our ‘Healthy Living’ initiatives, which continue to drive strong double-digit growth in our Domestic Appliances business.
•		In the US, Philips entered into a multi-year partnership with Bliss, an international beauty brand, launching an at-home hair removal kit.
•		In January 2008, Philips Sonicare launched the HealthyWhite whitening toothbrush in Europe, bringing the Flexcare range of products to full complement in the European market.

Financial performance

•		On a comparable basis, sales at Consumer Lifestyle were on par with Q1 2007. At Connected Displays, comparable sales declined by 2%, as a result of the continued focus on margin management. Sales levels at most other operational businesses were in line with or higher than Q1 2007, with the strongest growth visible at Domestic Appliances, Shaving & Beauty and Peripherals & Accessories.
•		From a geographical perspective, comparable sales growth was particularly strong in emerging markets.
•		EBITA declined by EUR 64 million to EUR 77 million, or 2.9% of sales. A EUR 44 million reduction in Connected Displays’ EBITA and EUR 30 million lower past-use optical license revenue more than offset moderate improvements in the rest of the business.
•		Profitability at the remaining Consumer Lifestyle businesses, notably Domestic Appliances, Shaving & Beauty and Video & Multimedia Applications, remained strong.

Looking ahead

•		Margin pressure at Connected Displays is expected to continue.
•		Actions to structurally improve the profitability of Connected Displays will continue, resulting in total financial charges of up to EUR 125 million in 2008.
•		The sale of the Set-Top Box and Connectivity Solutions activities is now expected to close in Q2 2008.

Innovation & Emerging Businesses

Key data
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Sales			160				79
Sales growth
% nominal			(60	)			(51	)
% comparable			40				(22	)
EBITA Technologies / Incubators			(30	)			(46	)
EBITA others			(1	)			(22	)
EBITA			(31	)			(68	)
EBIT			(31	)			(68	)
Net operating capital (NOC)			155				216
Number of employees (FTEs)			6,500				5,608

Business highlights

•		Philips Research announced that it is spearheading the HeartCycle consortium, comprising 18 research, academic, industrial and medical organizations from nine different European countries and China. The consortium aims to improve the quality of life for coronary heart disease and heart failure patients.
•		At EuroShop 2008, Philips Research showcased a selection of new lighting solutions that enable interactive product presentations and quick-and-easy atmosphere creation for retailers.
•		Philips received the coveted Gold iF product design award for the EcoClassic50/MASTERClassic energy-saving lamp, completing an extremely successful participation in this prestigious international design competition, in which Philips collected a total of 27 awards.

Financial performance

•		The EBITA decline compared to Q1 2007 was primarily due to a EUR 13 million loss on the sale of HTP Optics and lower IP license revenues. Q1 2007 EBITA included a EUR 6 million gain on the sale of TASS.
•		The year-on-year increase in net operating capital was attributable to the divestment of businesses which operated with negative working capital.
•		Compared to Q1 2007, the reduction in the number of employees was mainly due to the divestment of businesses over the past 12 months.

Looking ahead

•

Further investment in Research and the Incubators is expected to result in an average quarterly spend of EUR 40 million for the remainder of 2008.

Group Management & Services

Key data
in millions of euros unless otherwise stated

		Q1				Q1
		2007				2008
Sales			49				39
Sales growth
% nominal			82				(20	)
% comparable			96				(22	)
EBITA Corporate & Regional Costs			(33	)			(42	)
EBITA Brand Campaign			(2	)			(5	)
EBITA Service Units, Pensions and Other			(10	)			(18	)
EBITA			(45	)			(65	)
EBIT			(45	)			(65	)
Net operating capital (NOC)			425				987
Number of employees (FTEs)			6,956				5,628

Business highlights

•		On the publication of its tenth Sustainability Report, Philips announced a one-third increase in Green Product sales to EUR 5.3 billion. Green Product sales now make up 20% of total sales, with strong contributions from the Consumer Lifestyle and Healthcare sectors as well as Lighting.
•		SAM Research, the leading asset manager for sustainability investments, which identifies leaders for the Dow Jones Sustainability Indexes, named Philips a SAM Gold Class world leader in its Sustainability Yearbook 2008 and SAM Sector Leader in our industry group.
•		Philips was named as a winner in the 2008 Investor Relations Global Rankings in the categories ‘best corporate governance practices’ and ‘best Investor Relations website’.

Financial performance

•		The EBITA decline of Corporate & Regional overheads compared to Q1 2007 was mainly due to a different seasonal pattern in overhead-related project spend.
•		Costs of pensions and other post-retirement benefits increased compared to Q1 2007.
•		The year-on-year increase in net operating capital was primarily related to prepaid pension assets.

Looking ahead

•

Investment in the brand campaign is expected to total approximately EUR 20 million in Q2 2008 and EUR 70 million for the full year.

•

For the full year, Corporate and Regional overhead costs are expected to be lower than in 2007.

•

Costs of pensions and other post-retirement benefit plans for each of the next three quarters are anticipated to be broadly in line with Q1 2008, implying a limited nominal increase for the full year.

Vision 2010 update

In September last year we announced our vision for the year 2010, specifically our goal to more than double our EBITA per share in the coming three years. Following the successful completion of the bulk of our capital reallocation program — including in particular the acquisitions of Genlyte and Respironics — we are now in a position to update Vision 2010 in more detail as follows:

•		Our Group-level EBITA margin is now expected to be in the range of 10 — 11% in 2010, with average annual sales growth of above 6%.
•		This Group EBITA target is underpinned by the following 2010 EBITA margins per sector:

	—		Healthcare		15 — 17%
	—		Lighting		12 — 14%
	—		Consumer Lifestyle		8 — 10%

•		We confirm our objective to more than double EBITA per share by 2010 from the 2007 level.
•		We expect our return on invested capital (ROIC) to reach 12 — 13% by the year 2010, significantly above our current ROIC level, which has been negatively impacted by the increase in our asset base driven by recent acquisitions.

Outlook

We expect to be able to continue to benefit from the good defensive qualities demonstrated by our business in the first quarter, specifically Healthcare, Lighting and the non-TV businesses of Consumer Lifestyle.

Anticipating a softening in some mature economies, we will further invest in supporting the excellent growth across the emerging markets and will further sharpen our focus on both cost levels and cash flow.

We will continue to execute on our management agenda with specific focus on the integration of our recent acquisitions and on the further structural steps necessary to deal with the unsatisfactory margins in our TV business.

We are confident that 2008 will be a year in which we make progress towards reaching the objectives set out in Vision 2010.

Amsterdam, April 14, 2008

Board of Management

Consolidated statements of income

all amounts in millions of euros unless otherwise stated

		January to March
		2007				2008
Sales			5,930				5,965
Cost of sales			(3,939	)			(3,992	)
Gross margin			1,991				1,973
Selling expenses			(1,112	)			(1,143	)
General and administrative expenses			(212	)			(236	)
Research and development expenses			(403	)			(409	)
Other business income and expenses			48				(10	)
Income from operations			312				175
Financial income and expenses			681				46
Income before taxes			993				221
Income tax expense			(92	)			(49	)
Income after taxes			901				172
Results relating to equity-accounted investees			(49	)			60
Minority interests			—				—
Income from continuing operations			852				232
Discontinued operations			23				(13	)
Net income			875				219
Weighted average number of common shares outstanding (after deduction of treasury stock) during the period (in thousands):
•     basic			1,100,107				1,048,432
•     diluted			1,111,232				1,058,696
Net income per common share in euros:
•     basic			0.80				0.21
•     diluted			0.79				0.21
Ratios
Gross margin as a % of sales			33.6				33.1
Selling expenses as a % of sales			(18.8	)			(19.2	)
G&A expenses as a % of sales			(3.6	)			(4.0	)
R&D expenses as a % of sales			(6.8	)			(6.9	)
EBIT or Income from operations			312				175
as a % of sales			5.3				2.9
EBITA			370				265
as a % of sales			6.2				4.4

Consolidated balance sheets

in millions of euros unless otherwise stated

		March 31,				December 31,				March 31,
		2007				2007				2008
Current assets:
Cash and cash equivalents			5,779				8,769				4,657
Receivables			4,287				4,670				4,773
Current assets of discontinued operations			206				169				156
Inventories			3,108				3,203				3,717
Other current assets			1,341				1,020				1,392
Total current assets			14,721				17,831				14,695
Non-current assets:
Investments in equity-accounted investees			2,811				1,886				252
Other non-current financial assets			6,744				3,183				4,481
Non-current receivables			222				84				83
Non-current assets of discontinued operations			221				164				154
Other non-current assets			3,520				3,726				–3,756
Property, plant and equipment			3,144				3,180				3,419
Intangible assets excluding goodwill			2,011				2,154				3,839
Goodwill			3,945				4,135				7,266
Total assets			37,339				36,343				37,945
Current liabilities:
Accounts and notes payable			2,755				3,372				2,939
Current liabilities of discontinued operations			53				46				44
Accrued liabilities			3,347				2,984				3,168
Short-term provisions			684				377				405
Other current liabilities			561				509				460
Dividend payable			659				—				720
Short-term debt			1,006				2,345				2,234
Total current liabilities			9,065				9,633				9,970
Non-current liabilities:
Long-term debt			2,928				1,212				3,171
Non-current liabilities of discontinued operations			2,547				111				102
Long-term provisions			116				2,727				3,498
Other non-current liabilities			666				934				935
Total liabilities			15,322				14,617				17,676
Minority interests			48				42				41
Stockholders’ equity			21,969				21,684				20,228
Total liabilities and equity			37,339				36,343				37,945
Number of common shares outstanding (after deduction of treasury stock) at the end of period (in thousands)			1,097,563				1,064,893				1,028,349
Ratios
Stockholder’s equity per common share in euros			20.02				20.36				19.67
Inventories as a % of sales			11.7				12.0				13.9
Net debt (cash): group equity			(9):109				(32):132				4:96
Net operating capital			9,948				10,586				16,931
Employees at end of period			124,298				123,801				134,212
of which discontinued operations			6,321				5,703				5,597

Consolidated statements of cash flows*

all amounts in millions of euros unless otherwise stated

		January to March
		2007				2008
Cash flows from operating activities:
Net income			875				219
(Income) loss discontinued operations			(23	)			13
Adjustments to reconcile income to net cash provided by (used for) operating activities:
Depreciation and amortization			204				252
Impairment of goodwill, equity-accounted investees and available-for-sale securities			39				—
Net gain on sale of assets			(774	)			(69	)
(Income) loss from equity-accounted investees (net of dividends received)			87				(9	)
Minority interests (net of dividends paid)			—				—
(Increase) decrease in working capital/other current assets			(597	)			(1,002	)
(Increase) decrease in non-current receivables/other assets/other liabilities			(287	)			(58	)
Increase (decrease) in provisions			80				78
Proceeds from sales of trading securities			182				—
Other items			20				2
Net cash provided by (used for) operating activities			(194	)			(574	)
Cash flows from investing activities:
Purchase of intangible assets			(19	)			(28	)
Capital expenditures on property, plant and equipment			(152	)			(148	)
Proceeds from disposals of property, plant and equipment			10				4
Cash from (to) derivatives			(15	)			184
Proceeds from sale (purchase) of other non-current financial assets			1,141				737
Proceeds from sale (purchase) of businesses			(487	)			(5,213	)
Net cash provided by (used for) investing activities			478				(4,464	)
Cash flows from financing activities:
Increase (decrease) in debt			2				1,959
Treasury stock transactions			(306	)			(967	)
Net cash provided by (used for) financing activities			(304	)			992
Net cash provided by (used for) continuing operations			(20	)			(4,046	)
Cash flows from discontinued operations:
Net cash provided by (used for) operating activities			(83	)			(21	)
Net cash provided by (used for) discontinued operations			(83	)			(21	)
Net cash provided by (used for) continuing and discontinued operations			(103	)			(4,067	)
Effect of change in exchange rates on cash positions			(14	)			(55	)
Cash and cash equivalents at beginning of period			6,023				8,877
Cash and cash equivalents at end of period			5,906				4,755
Less cash of discontinued operations at end of period			127				98
Cash of continuing operations at end of period			5,779				4,657

*		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.

Ratio
Cash flows before financing activities			284				(5,038	)

Consolidated statement of changes in stockholders’ equity

all amounts in millions of euros

																		accumulated other comprehensive income (loss)																				Q1 2008
						capital in												unrealized gain								changes in												total
						excess								currency				(loss) on								fair value of								treasury				stock-
		common				of par				retained				translation				available-for-				pensions				cash flow								shares at				holders’
		stock				value				earnings				differences				sale securities				(FAS 158)				hedges				total				cost				equity
Balance as of December 31, 2007			228				—				25,559				(2,373	)			1,048				(590	)			28				(1,887	)			(2,216	)			21,684
Net income											219																												219
Net current period change															(284	)			309				44				5				74								74
Reclassifications into income															11				(99	)							(10	)			(98	)							(98	)
Total comprehensive income (loss), net of tax											219				(273	)			210				44				(5	)			(24	)							195
Dividend payable											(720	)																											(720	)
Cancellation of treasury stock			(11	)							(1,707	)																							1,718				—
Purchase of treasury stock																																			(974	)			(974	)
Re-issuance of treasury stock							(1	)																											17				16
Share-based compensation plans							27																																27
Balance as of March 31, 2008			217				26				23,351				(2,646	)			1,258				(546	)			23				(1,911	)			(1,455	)			20,228

Sectors

all amounts in millions of euros unless otherwise stated
updated to reflect the new sector reporting structure

Sales and income from operations

		1st quarter
		2007												2008
						income from operations												income from operations
										as % of												as % of
		sales				amount				sales				sales				amount				sales
Healthcare			1,431				73				5.1				1,474				77				5.2
Lighting			1,474				177				12.0				1,711				158				9.2
Consumer Lifestyle*			2,816				138				4.9				2,662				73				2.7
Innovation & Emerging Businesses			160				(31	)			(19.4	)			79				(68	)			(86.1	)
Group Management & Services			49				(45	)			(91.8	)			39				(65	)			(166.7	)
			5,930				312				5.3				5,965				175				2.9
* of which Connected Displays			1,293				(51	)			(3.9	)			1,227				(95	)			(7.7	)

Sectors and main countries

all amounts in millions of euros
updated to reflect the new sector reporting structure

Sales and total assets

		sales								total assets
		January to March								March 31,
		2007				2008				2007				2008
Healthcare			1,431				1,474				6,626				10,507
Lighting			1,474				1,711				4,696				7,399
Consumer Lifestyle			2,816				2,662				4,005				4,102
Innovation & Emerging Businesses			160				79				613				520
Group Management & Services			49				39				20,972				15,107
			5,930				5,965				36,912				37,635
Discontinued operations											427				310
											37,339				37,945

Sales and long-lived assets

		sales								long-lived assets *
		January to March								March 31,
		2007				2008				2007				2008
United States			1,559				1,511				4,831				10,414
Germany			441				481				289				285
China			420				444				165				156
France			366				391				104				104
United Kingdom			279				270				784				676
Netherlands			255				261				1,171				1,246
Other countries			2,610				2,607				1,756				1,643
			5,930				5,965				9,100				14,524

Pension costs

all amounts in millions of euros

Net periodic pension costs of defined-benefit plans

		January to March 2008
		Netherlands				other
Service cost			34				23
Interest cost on the projected benefit obligation			131				100
Expected return on plan assets			(192	)			(94	)
Net actuarial (gain) loss			(4	)			15
Prior service cost (income)			(11	)			2
Net periodic cost (income)			(42	)			46

The net periodic pension costs in the first quarter of 2008 amounted to EUR 27 million, of which EUR 4 million related to defined-benefit (DB) plans (the Netherlands income of EUR 42 million, other countries cost of EUR 46 million) and EUR 23 million related to defined-contribution (DC) plans (the Netherlands cost of EUR I million, other countries cost of EUR 22 million).

Net periodic costs of postretirement benefits other than pensions

		January to March 2008
		Netherlands				other
Service cost			—				1
Interest cost on the accumulated postretirement benefit obligation			—				8
Translation obligation			—				1
Net actuarial loss			—				2
Net periodic cost			—				12

Consolidated statements of income
in accordance with IFRS

all amounts in millions of euros unless otherwise stated
updated to reflect changes in accounting policies for pensions under International Financial Reporting Standards (“IFRS”)

		January to March
		2007				2008
Sales			5,930				5,965
Cost of sales			(3,945	)			(4,001	)
Gross margin			1,985				1,964
Selling expenses			(1,112	)			(1,142	)
General and administrative expenses			(197	)			(236	)
Research and development expenses			(395	)			(387	)
Other business income and expenses			17				(14	)
Income from operations			298				185
Financial income and expenses			679				119
Income before taxes			977				304
Income tax expense			(91	)			(57	)
Income after taxes			886				247
Results relating to equity-accounted investees			(46	)			59
Minority interests			—				—
Income from continuing operations			840				306
Discontinued operations			23				(13	)
Net income			863				293
Weighted average number of common shares outstanding (after deduction of treasury stock) during the period (in thousands):
•   basic			1,100,107				1,048,432
•   diluted			1,111,459				1,058,960
Net income per common share in euros:
•   basic			0.78				0.28
•   diluted			0.78				0.28
Ratios
Gross margin as a % of sales			33.5				32.9
Selling expenses as a % of sales			(18.8	)			(19.1	)
G&A expenses as a % of sales			(3.3	)			(4.0	)
R&D expenses as a % of sales			(6.7	)			(6.5	)
EBIT or Income from operations			298				185
as a % of sales			5.0				3.1
EBITA			355				256
as a % of sales			6.0				4.3

Consolidated balance sheets in accordance with IFRS

in millions of euros unless otherwise stated
updated to reflect changes in accounting policies for pensions under International Financial Reporting Standards (“IFRS”)

		March 31,				December 31,				March 31,
		2007				2007				2008
Current assets:
Cash and cash equivalents			5,779				8,769				4,657
Receivables			4,287				4,670				4,773
Current assets of discontinued operations			206				149				156
Inventories			3,108				3,203				3,717
Other current assets			697				622				867
Total current assets			14,077				17,413				14,170
Non-current assets:
Investments in equity-accounted investees			2,711				1,817				254
Other non-current financial assets			6,744				3,183				4,481
Non-current receivables			214				78				78
Non-current assets of discontinued operations			218				170				140
Other non-current assets			2,360				2,512				2,684
Deferred tax assets			1,571				1,271				1,362
Property, plant and equipment			3,159				3,194				3,430
Intangible assets excluding goodwill			2,725				2,835				4,514
Goodwill			3,633				3,800				6,940
Total assets			37,412				36,273				38,053
Current liabilities:
Accounts and notes payable			2,755				3,372				2,939
Current liabilities of discontinued operations			53				46				44
Accrued liabilities			3,329				2,975				3,135
Short-term provisions			689				382				357
Other current liabilities			561				509				460
Dividend payable			659				—				720
Short-term debt			1,012				2,350				2,237
Total current liabilities			9,058				9,634				9,892
Non-current liabilities:
Long-term debt			2,929				1,213				3,172
Long-term provisions			1,902				2,021				2,001
Deferred tax liabilities			707				667				1,571
Non-current liabilities of discontinued operations			29				32				30
Other non-current liabilities			549				796				900
Total liabilities			15,174				14,363				17,566
Minority interests *			140				127				119
Stockholders’ equity			22,098				21,783				20,368
Total liabilities and equity			37,412				36,273				38,053
Number of common shares outstanding (after deduction of treasury stock) at the end of period (in thousands)			1,097,563				1,064,893				1,028,349
Ratios
Stockholder’s equity per common share in euros			20.13				20.46				19.81
Inventories as a % of sales			11.7				12.0				13.9
Net debt (cash): group equity			(9):109				(31):131				4:96
Employees at end of period			124,298				123,801				134,212
of which discontinued operations			6,321				5,703				5,597