Koninklijke Philips Electronics N.V. (PHG)

Q4 2011 Earnings Call

January 30, 2012 3:30 PM ET


Abhijit Bhattacharya – Head, IR

Frans van Houten – President and CEO

Ron Wirahadiraksa – CFO


Andreas Willi – JP Morgan

Martin Wilkie – Deutsche Bank

Ben Uglow – Morgan Stanley

Ludovic Debailleux – Natixis Securities

Gaël De Bray – Societe Generale

Martin Prozesky – Sanford Bernstein

Olivier Esnou – Exane BNP Paribas

Sjoerd Ummels – ING Belgium

William Mackie – Berenberg Bank

Andrew Carter – Royal Bank of Canada



Welcome to the Royal Philips Electronics Fourth Quarter Annual Results 2011 Conference Call on Monday, 30th of January 2012.

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During the introduction hosted by Mr. Frans van Houten, CEO; and Mr. Ron Wirahadiraksa, CFO, all participants will be in a listen-only mode. After the introduction, there will be an opportunity to ask questions. (Operator Instructions)

Please note that this call will be recorded and is available by webcast on the website of Royal Philips Electronics.

I’ll now hand the conference over to Mr. Abhijit Bhattacharya, Head of Investor Relations. Please go ahead, sir.

Abhijit Bhattacharya

Good morning, ladies and gentlemen. Welcome to this conference call on the Fourth Quarter and Full Year Results for 2011 for Royal Philips Electronics.

I am here with Philips’ CEO, Frans van Houten, and our CFO, Ron Wirahadiraksa.

In a moment, Frans will take you through his introductory remarks and provide an update on our performance. Ron will shed more light on the details of the financial performance during the quarter and the year. After this, both Frans and Ron will be happy to take your questions.

As usual, our press release and the accompanying information slide deck were published at 7 a.m. CET this morning. Both documents are now available for download from our Investor Relations website. We will also make available a full transcript of this conference call on the Investor Relations website by tomorrow at the latest.

With that, let me hand you over to Frans to start proceedings for the day.

Frans van Houten

Thanks, Abhijit. Welcome to you all and thank you for joining us today.

2011 was an eventful year for Philips. It was clearly a year of change in which we made bold decisions to transform Philips to structurally speed up growth, improve profitability and ROIC.

We launched Accelerate, our change and performance improvement program. This multi-year program is designed to fundamentally transform our company into a more efficient, agile, and less complex organization, resulting in a healthy growth rate and the creation of value for shareholders.

I’ve always believed that Philips has great potential. Now nine months after taking over as the CEO, I have absolutely no doubt that our company has far greater potential than our current performance demonstrates.

Philips operates in the right markets and has the right portfolio to address key trends, such as the demand for affordable healthcare, the need for greater energy efficiency, and the desire for personal wellbeing. A large majority of our businesses have the right fundamentals for profitable growth. In addition, over the years, we have built up a strong presence in the growth geographies which now represent 33% of group sales.

We have seen that when we resource our plans well, we are able to win market share, led by Lighting and Consumer Lifestyle sectors in particular, our Net Promoter Score, a leading indicator for market share growth has improved for outright leadership positions. We have gained market share in healthcare in the United States, and while the data for the other businesses and geographies is not yet available, we expect to have gained market share in the growth business of Consumer Lifestyle and more importantly in LED Lighting.

In addition, a few highlights from 2011 underscore our potential in some very exciting areas. In Healthcare, we received clearance from the FDA to market the first ever digital broadband MRI solution, our innovative PET/MR Imaging System and our HeartNavigator interventional tool for minimally invasive cardiac procedures.

Health & Wellness in our Consumer Lifestyle sector started selling the new Sonicare AirFloss. Since the launch, Philips Oral Healthcare has significantly increased its share of the electrical interdental cleaning market in key geographies. And Lighting won the prestigious L Prize competition commissioned by the U.S. Department of Energy, a clear testament that we manufacturer LED products that are topnotch when it comes to efficiency, performance, lifetime and cost.

More broadly, in 2011 our Healthcare business grew at a rate higher than 4% to 5% growth rate for the markets we serve. In Lighting, we were in our targeted range of 6% to 8% with LED product sales, excluding Lumileds growing at around 70% for the year. The growth businesses in Consumer Lifestyle registered an impressive double-digit sales growth for the year while operating in difficult market conditions.

Despite these examples of great, innovative work and good sales growth, it is clear to me that Philips is realizing only a fraction of its potential. We have many valuable assets in the company as well as great and talented employees. However, it is in the operational execution and company culture where we need to improve significantly and our Accelerate! program will help deliver this.

At Philips, we want to excel through innovation, customer intimacy and speed. Innovation is our lifeblood and an important driver to differentiate, to compete and realize profitable growth. It’s vital to invest in innovation in good economic times but even more so in challenging economic times like the one we are currently facing. In a world that is changing at an ever faster pace, we need to adapt faster to changing market needs and a changing competitive landscape, Accelerate! is about bringing meaningful innovation to our customers in local markets, by giving more responsibility and accountability to our people in these markets. We believe that the people on the ground are the ones who see opportunities and they should be empowered to aggressively pursue them.

We also continue to invest in innovation and reallocate resources to growth markets and geographies. To funds these investments, part of the Accelerate! program is aimed at significantly lowering overhead cost. As you know, in October we announced the plan aimed at savings EUR800 million, that’s about 20% of overhead cost by 2014.

Our actions to deliver on the overhead cost-reduction program are on track and the first cost savings were recorded in the fourth quarter as planned. The majority of the savings will materialize in 2012 and 2013 and we’re on track to reach our cost-saving targets.

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