Pierre-Jean Sivignon Royal Philips Electronics - CFO
CONFERENCE CALL PARTICIPANTS
Guenther Hollfelder HVB Group - Analyst
Niels de Zwart Rabo Securities - Analyst
Bert van Dyck Financial Daily - Analyst
Bram Cornelisse Merrill Lynch - Analyst
Didier Scemama ABN Amro - Analyst
Nicolas Gaudois Deutsche Bank - Analyst
Uche Orji JP Morgan Chase & Co - Analyst
Janardan Menon Dresdner Bank - Analyst
Matthew Gehl Goldman Sachs - Analyst
Antoine Badel CSFB - Analyst
Francois Meunier Cazenove - Analyst
Thomas Brenier Societe Generale - Analyst
Luc Mouzon Exane BNP Paribas - Analyst
Sean Murphy Nomura Securities International - Analyst
Jerome Samuel CDC IXIS Capital Markets - Analyst
Eric de Graaf Petercam - Analyst
Jan Berghuis Kempen & Co - Analyst
Bert van Dijk Het Financieele Dagblad – Media
Welcome to the Royal Philips Electronics third quarter results 2005 conference call on October 17, 2005. For the introduction by Mr. Pierre-Jean Sivignon, Chief Financial Officer of Royal Philips Electronics, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.
Please note that this call will be recorded and is available by webcast on the website of Royal Philips Electronics. I will now hand the conference over to Mr. Pierre-Jean Sivignon. Please go ahead, sir.
Pierre-Jean Sivignon - Royal Philips Electronics - CFO
Ladies and gentlemen, good morning. Let me first tell you that I am very proud to be there with you today, for what is my first conference call for these third quarter results of Philips Electronics. So let me welcome you to this conference call for the 2005 third quarter results. I will make a few introductory remarks and then open up the call for your questions. This quarter has shown a continuation of the implementation of our value-creating strategy, of liquidating our financial holdings and reallocating resources to higher margin businesses, or buying back our own shares. Let me be more specific. Firstly, we have disposed of 1,740m from a financial holding mainly being TSMC, Atos Origin, and LG Philips LCD. Secondly, we have completed the Stentor acquisition costing 175m, and announced the acquisition of 47% of Lumiled for approximately 765m. Thirdly, we announced the second share buyback program in 2005 for 1.5b, for which we actually purchased 347m of share in the third quarter alone. Fourthly, we continue to improve our underlying performance as well as maintain our financial discipline. A few words on our strong performance in this quarter. Comparable sales growth versus a year ago was strong in Medical, DAP, Consumer Electronics and Lighting. In Semiconductor we had slightly higher sequential growth than we expected. Much of the growth is a result of our investment in innovation, in the context of some weakness in some of the markets that we are serving. In Medical we increased our underlying results, excluding MedQuist, and some Stentor acquisition related items. Our order intake continues on a positive trend, with a 9% comparable increase versus one year ago. DAP has had success with newly introduced products, and is on track for the expected annual growth rate of approximately 7%, with an IFO margin of 15 to 16%. Consumer Electronics has had an excellent sales quarter, and remains on track to deliver the annual 4 to 4.5% IFO margin as from the end of 2005. This is based on the successful implementation of their business renewal program. Based on increased R&D in recent years, Lighting has again shown sales growth of approximately double GDP, compared to the historical one-time GDP. The higher R&D is continuing, and we expect to see the start of deliveries of some new products starting early 2006. Semiconductors has shown more strength than we had anticipated which, coupled with the early benefit from their own business renewal program, has had a marked impact on their results. In other activities, we still need to do some more work to reduce the run rate of the negative results. But these have our full attention, and we hope to be able to update you on this in the not too distant future. I'm very happy to say that the corrective actions we took on inventory at the end of the second quarter has proved to be successful, and that the percentage is now lower than one year ago. In fact, it is the lowest ever for the third quarter at Philips. Our cash flow has been very strong, particularly due to the sale of some of our financial holdings, amounting to 1,714m. At the same time, we did buy back our own shares to the extent of 347m. Overall this has led to a zero net debt position at the end of the quarter. During the fourth quarter we expect to pay 765m for the Lumiled acquisition, as well as continue the share buyback program. I will now open up this call for your questions.
- Source: Royal Philips Electronics’ web site.
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