2001 - 5
This report comprises a copy of the Quarterly Report of the Philips Group for the three months ended March 31, 2001, dated April 17, 2001.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 17th day of April, 2001.
January to March
2001 2000
Sales 8,208 8,329
Income from operations, excl. amortization
goodwill and other intangibles arising
from acquisitions (Ebita) 412 716
As a % of sales 5.0 8.6
Income from operations 332 663
As a % of sales 4.0 8.0
Net income 106 1,140
Per common share in euros 0.08 0.86
Cash flows before financing activities (1,184) 535
Income from operations,
as a % of net operating capital (RONA) 11.5 25.1
Net income,
as a % of stockholders equity (ROE) 2.5 31.2
Net debt : group equity ratio 17:83 4:96
Number of employees 219,399 229,341
PHILIPS REPORTS NET INCOME OF EUR 106 MILLION IN THE FIRST QUARTER OF 2001
Weakness in telecommunications and PC industries continues
The rapid downturn in the telecommunications and PC industries that has affected the businesses of Royal Philips Electronics since December 2000, continued throughout the first quarter of 2001. Results at Components, Consumer Electronics and to a lesser extent Semiconductors, were especially impacted by this decline, the speed of which has been remarkable. Performance at Lighting, Domestic Appliances and Personal Care (DAP), and Medical Systems was solid, as expected.
Net Income in the first quarter amounted to EUR 106 million (EUR 0.08 per share) compared to EUR 1,140 million (EUR 0.86 per share) in the corresponding period of 2000. Included in income is an after tax gain of EUR 53 million from the sale of the Philips Broadcast Group to Thomson Multimedia. The first quarter of 2000 included a gain of EUR 526 million (EUR 0.40 per share) from the sale of a portion of the JDS Uniphase shares.
Sales in the first quarter came to EUR 8,208 million, a 1% decrease on the year before. Changes arising from (de)consolidations had a neutral effect on balance. Currency fluctuations had a positive effect of 3%. Price erosion in the first quarter, at 6%, compares with 5% in the corresponding quarter in the year earlier. Volume growth in the first quarter of 2001 was 2%.
Income from operations excluding amortization goodwill and other intangibles in the first quarter was EUR 412 million (5% of sales). Income included an incidental gain of EUR 70 million related to the sale of Philips Broadcast activities to Thomson Multimedia, and EUR 25 million collected insurance payments at Semiconductors. Also included were charges for the write-off of components and inventory obsolescence at Consumer Communications of EUR 74 million, one-time acquisition related charges for ADAC at Medical Systems of EUR 20 million, and charges of EUR 37 million for various activities in Miscellaneous. Last year's first quarter included charges of EUR 82 million for various restructuring projects, and other incidental charges.
Income from Operations amounted to EUR 332 million compared to EUR 663 million in the first quarter of 2000. The goodwill related charges came to EUR 80 million compared to EUR 53 million in 2000. The increase related to charges for newly acquired companies in 2000 (MedQuist, ADAC and Optiva).
Financial income and expenses in the first quarter were EUR -84 million, compared to income of EUR 480 million last year. The first quarter of 2000 included an incidental gain on the sale of a portion of JDS Uniphase shares of EUR 526 million. Excluding this item, the financial income and expense amounted to EUR -46 million. The difference mainly relates to higher interest expenses.
Income tax charges in the first quarter have been determined at a tentative rate of 25%. This compares to 20% (excluding non taxable gain on the sale of JDS Uniphase shares) in last year's corresponding quarter.
Philips' income from operational results relating to unconsolidated companies amounted to a loss of EUR 10 million in the first quarter, versus a profit of EUR 153 million last year. Market weakness resulted in lower contributions from TSMC, and negative contributions from SSMC and LG.Philips LCD Co. Philips' share in the results of Atos Origin was included under income from operational results on a three month delay basis (i.e. relating to Atos Origin's 4th quarter 2000 performance), and included Philips' share of non-recurring merger integration costs of EUR 20 million.
Goodwill charges relating to unconsolidated companies amounted to EUR 63 million compared to EUR 18 million in the first quarter of 2000. The increase related to Philips' shareholdings in TSMC and Atos Origin.
The share of third-party minority interests in the income of Group companies amounted to EUR 7 million, compared to EUR 14 million in the first quarter of 2000.
Net income for the first quarter amounted to EUR 106 million (EUR 0.08 per share) versus EUR 1,140 million (EUR 0.86 per share) in 2000.
Accounting policies
Accounting policies applied are unchanged compared to the year 2000.
Segment reporting
On February 8, 2001 it was announced that the activities listed under Consumer Electronics Specialty Products would be reallocated within the Group. In the first quarter of 2001, the respective businesses have been moved as follows:
Prior year financials for the year 2000 in the sectors have been restated accordingly.
Sales and income from operations per sector
Sales in the Lighting sector totaled EUR 1,295 million, 6% ahead of the year
before. Currency movements had a positive impact of 3% on sales. Volume growth
was 7%, while prices were 4% lower, on average. The strongest sales growth was
achieved by the business units Automotive & Special Lighting and Luminaires.
Income from operations came to EUR 202 million, approximately the same level as
last year. Margins remained strong at 15.5%, below the record 16.6% in the year
earlier quarter.
Sales in Consumer Electronics totaled EUR 2,685 million, a decrease of 5% over
the same quarter in 2000. Currency movements had a positive effect of 2% on
nominal sales. Sales volume increased by 4%, while prices decreased on average
by 10%; price erosion rose particularly in mobile phones. Sales of Mainstream CE
products increased marginally, hampered by the slowdown in the U.S. market.
Sales edged up in Branded Monitors, DVD Video and Audio Systems. Digital
Networks recorded sharply lower sales of set-top boxes, in particular to U.S.
cable operators. Sales in mobile handsets were impacted by the weakness in the
telecommunications industry, particularly in Europe, caused by slowing consumer
demand and adjustment of the excess inventories throughout the
supply chain. Income from operations in Consumer Electronics turned from a
profit of EUR 83 million in 2000 to a loss of EUR 99 million. The decrease was
mainly attributable to Consumer Communications, which reported a loss of EUR 118
million, compared to a profit of EUR 24 million last year. Adjusted sales plans
in Consumer Communications resulted in a write down of components and an
obsolescence charge of EUR 74 million. Sales of handsets in Western Europe were
significantly lower. By contrast, performance in Asia was positive, mainly
driven by the Xenium product which has been well received in the region. Due to
the sales shortfall, income from operations at Digital Networks ended the
quarter at a loss of EUR 40 million, EUR 24 million lower than the loss of EUR
16 million of last year. Income in 2001 included a charge of EUR 3 million for
write-off of inventories.
In the first quarter, Mainstream CE reported a loss of EUR 39 million, compared
to a loss of EUR 8 million in 2000. The performance was negatively impacted by
the slowdown of the U.S. economy, which left both manufacturers and retailers
with high inventory levels in the first few months of this year.
License income in the first quarter increased with EUR 15 million to EUR 98
million.
Sales in the DAP sector totaled EUR 440 million, representing 15% growth. The consolidated sales of Optiva Corporation was the main driver for the uplift (12%). Price erosion was stable at 2%, while volume growth was 3%. Strong growth was posted in Eastern Europe, Brazil and China. This was partly countered by lower sales in North America, reflecting the weaker economy and slowing demand. Sales in Europe were stimulated by the launch, together with Douwe Egberts, of the Senseo Crema, a revolutionary new coffee-making system. Income from operations increased by approximately 18% to EUR 53 million, mainly driven by improvements in Body Beauty and Health, and the Oral Care business.
Sales in the Components sector totaled EUR 934 million, a decrease of 22% over the first quarter of 2000. Changes in consolidations had a negative effect of 7%, while currency movements positively impacted nominal sales by 3%. Average prices decreased by 7%, while sales volume decreased by 11%. Sales in the sector were strongly affected by the slowdown in the worldwide PC industry and telecommunications markets, affecting sales in monitor displays, optical storage modules and mobile display systems.
In the first quarter income of Components came to a loss of EUR 77 million, compared to a profit of EUR 100 million last year. All businesses showed a deterioration on last year. Within Display Components, this was caused by lower sales and high cost levels in relation to reduced activity levels. Generally weak conditions for the mobile market, resulting in price erosion and lower capacity utilization, caused lower results within Mobile Display Systems. Optical Storage was strongly influenced by the continued slowdown of the PC market. Income also deteriorated compared to last year, due to higher investments in New Business Creation and investment for e-business projects.
Sales in the Semiconductors sector came to EUR 1,420 million, an increase of 16%
over the same quarter in the year earlier. The consolidation of MiCRUS and SMP
(Malaysia) had a positive effect of 8% on nominal sales, in addition to a 4%
positive currency effect. Price erosion was 6%, up from 3% last year, while
volume growth came to 10%.
Income from operations amounted to EUR 231 million, which is 4% lower than the
EUR 241 million of last year. Income in the first quarter 2001 included
collected insurance payments of EUR 25 million. Operating margin on revenues
declined from 16.8% in the first quarter of last year, to 14.5% this year.
Sales in the Medical Systems sector totaled EUR 824 million, 44% up from the
year earlier. The larger part of the increase relates to the consolidation of
MedQuist and ADAC (33%). Additionally, sales were positively influenced by
currency movements (5%). On a comparable basis, sales increased 6%, mainly
caused by Europe and North America. Order intake, excluding the effect of the
new consolidations, increased 21%, and was most significant in Magnetic
Resonance.
Income from operations in Medical Systems came to a small profit of EUR 1
million, compared to EUR 20 million last year. Higher goodwill charges of EUR 36
million, and one-time charges related to the acquisition of ADAC of EUR 20
million, mainly caused the deviation.
Sales in the Miscellaneous sector totaled EUR 610 million, a decrease of 8% over
the year before. In the first quarter Philips' stake in NavTech has been
increased from 50% to 80%, and the company has been consolidated as per January
1, 2001.
The income of Miscellaneous came to EUR 21 million and included special
charges of EUR 37 million for a number of items and the gain of EUR 70 million
on the sale of parts of Philips Professional Broadcast group to Thomson
Multimedia. Last year's income was a loss of EUR 23 million.
Income from operations in Unallocated was breakeven, compared to a loss of EUR 9 million last year.
Geographic developments
Geographically, sales growth was strong in North America (11% up), driven by sales of new consolidations (MedQuist, MiCRUS, ADAC and Optiva) and the appreciation of the U.S. dollar. On a comparable basis, sales were lower by 11%, affected by the slowdown of the U.S. economy. Sales in Asia Pacific ended 3% lower, particularly caused by lower supplies of
Components to the depressed PC industry. European sales decreased 8%, mainly caused by the deconsolidation of Origin; on a comparable basis, sales were virtually flat. Latin America saw 5% growth.
Income from operations in the first quarter weakened in all regions except Asia Pacific. The weaker economic conditions in the U.S. affected the performance in North America, in particular at Components, Mainstream CE and Digital Networks. This resulted in a loss of EUR 115 million for this region, compared to a loss of EUR 10 million last year. Income in Europe amounted to EUR 253 million and was approximately half the amount of last year. The lower performance in Europe was almost entirely due to the losses recorded in Consumer Communications and Components, and the impact of the financial crisis in Turkey. Income in Latin America was at the same level as last year. With an increase in income of EUR 51 million, Asia Pacific came to a profit of EUR 185 million. All sectors, except Components contributed to the improvement; increases were particularly noticeable at Mainstream CE and at Semiconductors.
Cash flows and financing
The cash flow from operating activities in the first quarter amounted to a
negative of EUR 349 million which was EUR 754 million lower than in the first
quarter of last year.
The variance was mostly related to the lower income, higher investment in
working capital and the decrease in provisions.
Expressed as a percentage of sales, inventories at the end of the first quarter
came to 15.6%, compared to 14.5% a year earlier. The biggest increases occurred
at Digital Networks, Components, Semiconductors and Lighting.
Cash flow from investing activities in the first quarter totaled EUR 835 million, compared to a positive inflow of EUR 130 million in 2000. The deviation is mainly caused by the absence of proceeds from the sales of securities, while securities worth EUR 550 million were sold last year. An additional impact came from net capital expenditures (mainly in Components and Semiconductors), which were EUR 757 million, EUR 301 million higher than last year, though considerably lower than the EUR 1,248 million of the last quarter of 2000.
In the first quarter of 2001, the cash flow from financing activities amounted to an inflow of EUR 946 million, due to the impact of a EUR 1,108 million increase in short term debt levels, mostly resulting from the USD 2.5 billion Global Commercial Paper program, launched earlier in the year.
The net debt to group equity ratio amounted to 17:83 at the end March 2001, compared to a ratio of 4:96 at the end of the first quarter of last year.
Employees
The number of employees at the end of March 2001 totaled 219,399, unchanged from January 1, 2001, but approximately 10,000 less than March 31, 2000.
Outlook
We see no signs that the slowdown in economic activity in certain parts of the world, particularly the USA, is near its end. This will continue to cause low growth and high price erosion for some of the markets in which Philips is active. As a result, net income in the second quarter before special charges is likely to be negative. Capital expenditures have been cut back to EUR 2.5 billion and will be reduced further if needed.
Measures are being taken to bring costs in line with revenue levels, including a headcount reduction of between 6,000 and 7,000 people. During the course of the second quarter, detailed plans will be communicated, in particular with respect to structurally underperforming activities in Components, and Consumer Electronics. For the moment, we expect to take one-time pre-tax charges of approximately EUR 350 million in the second quarter. This will include a charge of approximately EUR 60 million for the disentanglement of the Display Components business in preparation for the joint venture with LG.
April 17, 2001
Royal Philips Electronics
Board of Management
Statements of income
all amounts in millions of euros unless otherwise stated
January to March
2001 2000
Sales 8,208 8,329
Income from operations, excl. amortization
goodwill and other intangibles arising from
acquisitions (Ebita) 412 716
Amortization goodwill and other intangibles (80) (53)
Income from operations 332 663
Financial income and expenses (84) 480
Income before taxes 248 1,143
Income taxes (62) (124)
Income after taxes 186 1,019
Results relating to unconsolidated companies:
o income from operational results (10) 153
o amortization goodwill and other intangibles (63) (18)
(73) 135
Minority interests (7) (14)
Net income 106 1,140
Weighted average number of common
shares outstanding during the period
(after deduction of treasury stock)
o shares in thousands 1,282,674 1,331,020
Basic earnings per common share in
euros:
o net income 0.08 0.86
Diluted earnings per common share in
euros:
o net income 0.08 0.85
Safe Harbor: Statement under the Private Securities Litigation Reform
Act of 1995
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. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of 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, levels of consumer and business spending in major
economies, changes in consumer tastes and preferences, the levels of marketing
and promotional expenditures by Philips and its competitors, raw materials and
employee costs, changes in future exchange and interest rates (in particular,
changes in the euro and the US dollar can materially affect results), changes in
tax rates and future business combinations, acquisitions or dispositions and the
rate of technical changes. Market share estimates contained in this report are
based on outside sources such as specialized research institutes, industry and
dealer panels, etc. in combination with management estimates.
Balance sheets and additional ratios
all amounts in millions of euros unless otherwise stated
2001 2000 2000
March 31, Dec. 31, March 31,
Cash and cash equivalents 907 1,089 2,579
Securities 124 111 1,499
Receivables 6,517 6,806 6,619
Inventories 5,905 5,279 4,785
Unconsolidated companies 5,466 5,328 2,429
Other non-current financial
assets 3,762 3,747 365
Non-current receivables 2,657 2,713 2,113
Property, plant and equipment 9,612 9,041 7,640
Intangible assets - net 4,519 4,427 2,832
Total assets 39,469 38,541 30,861
Accounts payable and other
liabilities 8,205 8,818 8,203
Dividend payable 462 - 399
Debt 5,394 4,027 3,288
Provisions 3,351 3,491 3,248
Minority interests 483 469 365
Stockholders' equity 21,574 21,736 15,358
Total liabilities and
stockholders' equity 39,469 38,541 30,861
Ratios
Stockholders' equity,
per common share in euros 16.85 16.93 11.55
Inventories as a % of sales 15.6 13.9 14.5
Outstanding trade receivables,
in months' sales 1.6 1.5 1.6
Number of common shares
outstanding at the end of period
o shares in thousands 1,280,198 1,283,895 1,329,965
Statements of cash flows
all amounts in millions of euros unless otherwise stated
January to March
2001 2000
Cash flows from operating activities:
Net income 106 1,140
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 588 502
Net gain on sale of investments (84) (545)
Income from unconsolidated
companies 131 (153)
Minority interests 7 14
Increase in working capital (810) (555)
Decrease in non-current receivables 87 80
(Decrease) increase in provisions (186) 70
Other items (188) (148)
Net cash (used for) provided by
operating activities (349) 405
Cash flows from investing
activities:
Net capital expenditures (757) (456)
(Purchase) proceeds from the sale
of securities (1) 550
(Purchase) proceeds of other
non-current financial assets (3) (45)
Proceeds from sale of businesses/
(purchase of businesses) (74) 81
Net cash (used for) provided by
investing activities (835) 130
Cash flows before financing (1,184) 535
activities
* |
For a number of reasons, principally the effects of translation differences and consolidation changes, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items. |
Statements of cash flows (continued)
all amounts in millions of euros unless otherwise stated
January to March
2001 2000
Cash flows before financing
activities (1,184) 535
Cash flows from financing activities:
Increase (decrease) in debt 1,108 (174)
Treasury stock transactions (162) (173)
Capital repayment to shareholders - -
Dividends paid - -
Net cash provided by (used for)
financing activities 946 (347)
(Decrease) increase in cash and
cash equivalents (238) 188
Effect of changes in exchange rates
and consolidations on cash positions 56 60
Cash and cash equivalents at
beginning of the period 1,089 2,331
Cash and cash equivalents at end 907 2,579
of period
* |
For a number of reasons, principally the effects of translation differences and consolidation changes, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items. |
Statements of changes in stockholders' equity
all amounts in millions of euros unless otherwise stated
January to March
2001 2000
Balance as of beginning of period 21,736 14,757
Change in accounting policy:
o product/process development costs
inventories - (241)
o derivatives - 58
Exercise of convertible debentures 1 6
Treasury stock transactions (162) (173)
3% share reduction - -
Dividend accrual/payment (462) (399)
Net income for the period 106 1,140
Translation differences and other
(including deferred
results on derivatives) 355 210
Balance as of end of period 21,574 15,358
Product sectors
all amounts in millions of euros unless otherwise stated
January to March
2001 2000
segment Ebita income as % of segment Ebita income as % of
revenues (loss) segment revenues (loss) segment
from revenues from revenues
operations operations
Lighting 1,307 204 202 15.5 1,237 207 205 16.6
Consumer Electronics* 2,740 (99) (99) (3.6) 2,875 83 83 2.9
DAP 446 58 53 11.9 387 45 45 11.6
Components 1,332 (77) (77) (5.8) 1,640 100 100 6.1
Semiconductors 1,592 257 231 14.5 1,435 266 241 16.8
Medical Systems 824 46 1 0.1 574 30 20 3.5
Origin - - - - 400 9 1 0.3
Miscellaneous 664 23 21 3.2 766 (17) (23) (3.0)
Unallocated - 0 0 - (7) (9)
Total 8,905 412 332 9,314 716 663
Intersegment revenues (697) (985)
Sales 8,208 8,329
Income from operations
as a % of sales 4.0 8.0
* of which:
Mainstream CE 2,073 (39) (39) (1.9) 1,982 (8) (8) (0.4)
Consumer
Communications 372 (118) (118) (31.7) 521 24 24 4.6
Digital Networks 203 (40) (40) (19.7) 278 (16) (16) (5.8)
Licenses 92 98 98 106.5 94 83 83 88.3
Consumer Electronics 2,740 (99) (99) (3.6) 2,875 83 83 2.9
Geographic areas
all amounts in millions of euros unless otherwise stated
January to March
2001 2000
segment Ebita income as % of segment Ebita income as % of
revenues (loss) segment revenues (loss) segment
from revenues from revenues
operations operations
Netherlands 2,921 221 220 7.5 3,553 291 282 7.9
Europe excl. Netherlands 4,879 34 33 0.7 4,508 251 248 5.5
USA and Canada 2,947 (37) (115) (3.9) 2,385 31 (10) (0.4)
Latin America 394 9 9 2.3 383 9 9 2.3
Africa 32 0 0 0.0 28 0 0 0.0
Asia 3,205 183 183 5.7 3,131 138 138 4.4
Australia and New
Zealand 70 2 2 2.9 91 (4) (4) (4.4)
Total 14,448 412 332 14,079 716 663
Interregional revenues (6,240) (5,750)
Sales 8,208 8,329
Income from operations
as a % of sales 4.0 8.0
Product sectors and main countries
all amounts in millions of euros unless otherwise stated
Sales (to third parties) Total assets*
January to March 2001 2000
2001 2000 March 31, March 31,
Lighting 1,295 1,226 3,076 2,972
Consumer Electronics 2,685 2,812 4,346 4,133
DAP 440 381 1,116 749
Components 934 1,204 5,795 5,650
Semiconductors 1,420 1,224 9,454 5,628
Medical Systems 824 573 4,052 1,869
Origin - 248 - 686
Miscellaneous 610 661 3,389 1,769
Unallocated - - 8,241 7,405
Total 8,208 8,329 39,469 30,861
Sales and total assets
Sales (to third parties) Long-lived assets
January to March 2001 2000
2001 2000 March 31, March 31,
Netherlands 385 438 1,941 1,822
United States 2,071 1,849 5,190 2,576
Germany 709 795 733 625
France 480 509 495 405
United Kingdom 438 497 346 331
China (incl. Hong Kong) 639 579 909 681
Other countries 3,486 3,662 4,517 4,032
Total 8,208 8,329 14,131 10,472
* Includes book value of unconsolidated companies and intangible assets
Philips quarterly statistics
all amounts in millions of euros unless otherwise stated; percentage increases
always in relation to the
corresponding period of previous year
2000 2001
1st 2nd 3rd 4th 1st 2nd 3rd 4th
quarter quarter quarter quarter quarter quarter quarter quarter
Sales 8,239 9,155 9,371 11,007 8,208
% increase 22 25 21 15 (1)
Ebita 716 779 1,016 2,112 412
as % of sales 8.6 8.5 10.8 19.2 5.0
% increase 26 98 148 256 (42)
Income from operations 663 724 945 1,949 332
as % of sales 8.0 7.9 10.1 17.7 4.0
% increase 21 127 168 267 (50)
Net income 1,140 3,604 2,066 2,792 106
% increase 143 1,230 455 306 (91)
per common share in euros 0.86 2.71 1.58 2.16 0.08
January- January- January- January- January- January- January- January-
March June September December March June September December
Sales 8,329 17,484 26,855 37,862 8,208
% increase 22 24 23 20 (1)
Ebita 716 1,495 2,511 4,623 412
as % of sales 8.6 8.6 9.4 12.2 5.0
% increase 26 55 83 135 (42)
Income from operations 663 1,387 2,332 4,281 332
as % of sales 8.0 7.9 8.7 11.3 4.0
% increase 21 60 91 144 (50)
as a % of net operating
capital (RONA) 25.1 25.3 27.4 35.7 11.5
Net income 1,140 4,744 6,810 9,602 106
% increase 143 541 512 434 (91)
as a % of stockholders'
equity (ROE) 31.2 62.1 56.5 53.5 2.5
per common share in euros 0.86 3.57 5.15 7.31 0.08
Period ending 2000 Period ending 2001
Inventories as % of 14.5 14.7 15.8 13.9 15.6
sales
Average collection
period
of trade receivables
in months' sales 1.6 1.6 1.6 1.5 1.6
Net debt: group equity 4:96 * 8:92 12:88 17:83
ratio
Total employees (in 229 232 239 219 219
thousands)
* Not meaningful: net cash exceeded the debt level.
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