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Philips ‘Vision 2010’ Plan Realigns CE, Other Divisions

Amsterdam, the Netherlands — Royal Philips Electronics today announced a new growth strategy, called “Vision 2010,” will realign its divisions to increase its market share in the areas of healthcare, lighting and consumer lifestyle.

Vision 2010 is a move to “further position Philips as a market-driven, people-centric company with a strategy and a structure that fully reflect the needs of its customer base, while also increasing shareholder value,” the company said. Consumer electronics will now be part of Philips consumer lifestyle, a new sector to be formed as of Jan. 1, 2008.

“Following the successful implementation of our 2004 to 2007 strategic plan, we are well on track to deliver on our objective to achieve above 7.5 percent EBITA in 2007. The time is right, therefore, to give our stakeholders a clear blueprint of what we want Philips to be in 2010,” commented Gerard Kleisterlee, Philips’ president/CEO.

“While our healthcare strategy is already people-centric, focusing on improving patient outcomes in specific care cycles such as cardiology, oncology and critical care from the hospital to the home, we have now developed a comprehensive consumer lifestyle strategy that takes into account the evolving needs of the modern, lifestyle oriented consumer. And as structure follows strategy, successful implementation requires a further realignment of the organization,” he said.

Philips plans to simplify its business structure by creating three core sectors with strong single-headed management: Philips healthcare, Philips lighting, and Philips consumer lifestyle. To this end, Philips intends to integrate its current consumer electronics (CE) and domestic appliances and personal care (DAP) businesses into one consumer lifestyle sector as of Jan. 1, 2008.

On Jan. 1 Andrea Ragnetti, currently CEO of DAP, will become CEO of the consumer lifestyle sector. Steve Rusckowski, currently CEO of medical systems, will become CEO of Philips healthcare. Effective from the same date, Rudy Provoost, currently CEO of CE, will move to the Philips lighting sector, transitioning to take over as CEO from Theo van Deursen, who will retire on April 1, 2008.

Kleisterlee said, “In particular, the integration of our current CE and DAP businesses into one consumer lifestyle sector will create a consumer solutions powerhouse closely grouped around the end-consumer, with deep consumer insight and a proven ability to develop, produce and market truly innovative products at higher levels of profitability than before. It will combine the best of both businesses, and will position Philips to reap the benefits from the growth expected in the consumer retail markets in the future.”

With Vision 2010, Philips also aims to achieve higher levels of operating profitability. By 2010, Philips expects the EBITA (earnings before interest, taxes and amortization) margin of its current businesses to exceed 10 percent through improved margin management, increased contribution from recent acquisitions, improvement of its product mix and the effects of the organizational simplification, estimated at $206.6 million to $275.4 million of cost savings, the company said.

“Philips also aims to deliver a minimum of 6 percent comparable annual average sales growth for the period 2008 to 2010. As announced previously, the company intends to arrive at an efficient balance sheet by the end of 2009 through a combination of value-creating acquisitions as well as continued return of capital to shareholders. With the above revenue and EBITA margin targets, and with our continued drive towards a more efficient capital structure, Philips expects EBITA per common share to more than double by 2010 from the level expected in 2007,” it said.