Philips 2006 Annual Report Download - page 9

Philips Annual Report 2006 9
Dear shareholder,
2006 was a year of decisive action and profound change
for Philips. Executing our strategy to create value through
sustained profi table growth in healthcare, lifestyle and
technology, we successfully concluded the divestment
of a majority stake in our Semiconductors division.
More importantly in shaping the future of our company,
we made no fewer than seven strategically aligned
acquisitions and continued to invest heavily in innovation,
design and the Philips brand. We also continued the disposal
of non-core activities.
Our four main divisions delivered on their objectives,
generating returns well in excess of their cost of capital.
Still, performance in some business lines is not yet where
we want it to be, so there are ample opportunities for
further improvement. The clean-up of the Other Activities
sector and the decisions we took to reduce Unallocated
costs will signifi cantly increase the transparency of our
results and help to unlock the full value of our businesses.
We redeployed capital in a disciplined way, spending a total
of EUR 2.5 billion on value-creating acquisitions in 2006
as we strengthened our businesses in line with our chosen
strategic direction. We also cancelled over 173 million
shares, 102 million of which were repurchased in 2006,
thereby returning EUR 3.3 billion to shareholders,
including the annual dividend.
With our portfolio now more sharply focused, we
have made major strides in creating an organization and
a way of working that should allow us to capture growth
opportunities arising from the trends that are set to
defi ne global economic development in the coming years.
These
include the need for more and better healthcare,
the demand
for energy-effi cient solutions, particularly
in lighting, and the desire for rewarding consumer
lifestyle experiences.
Going forward, we will build upon the growth and value
creation momentum we have developed over the past
few years. We will do this by offering customers and
end-users compelling value propositions based on real
insights into what they need and want, by harnessing
the outstanding array of talent in our organization,
and by pursuing simplicity in everything we do.
Financial performance in 2006
With Semiconductors accounted for as a discontinued
operation, sales amounted to almost EUR 27 billion,
a comparable increase of 6% and a step up from the
4% achieved in 2005.
Earnings before interest and tax (EBIT) amounted to
EUR 1,183 million, which corresponds to an EBIT margin
of 4.4% for the year, impacted by an incidental charge of
EUR 256 million, net of insurance recoveries, for asbestos-
related liabilities. Our EBIT margin of 8.2% in the fourth
quarter underlines the performance improvement realized
in 2006 and has created the momentum we require to
achieve our profi tability target of over 7.5% EBITA in 2007.
Group net income totaled EUR 5,383 million on the
back of the gain on the sale of a majority stake in our
Semiconductors division.
The desire to increase shareholder value is what
drives our actions. The book value of stockholders’ equity
has more than doubled over the past three years, from
EUR 10 per share in 2003 to almost EUR 21 by the
end of 2006.
Philips today is a different company and a different
value proposition for shareholders. Having adjusted
our dividend policy last year, we are again increasing
the average annual pay-out ratio this year, to 40-50%
of continuing net income. Consistent with this revised
“We made no fewer than seven strategically aligned acquisitions and
continued to invest heavily in innovation, design and the Philips brand.”
54 The Philips sectors 86 Risk management 100 Report of the Supervisory Board 110 Financial Statements