– all amounts in millions of euros unless otherwise stated; data included are unaudited
– financial reporting according to US GAAP unless otherwise stated
– includes restatement of brand campaign to Unallocated
– includes reclassification of MDS to discontinued operations

Philips reports full-year net income of EUR 2,868 million
Fourth-quarter net income of EUR 332 million

Full-year net income increased to EUR 2,868 million (EUR 2.29 per share), compared to the EUR 2,836 million (EUR 2.22 per share) reported for 2004.
In-the-quarter net income amounted to EUR 332 million (EUR 0.28 per share), compared to net income of EUR 498 million (EUR 0.39 per share) in the corresponding period of 2004, mainly driven by incidental results from unconsolidated companies and the advancement of a tax charge related to TSMC.

Full-year sales reached EUR 30,395 million, representing 4% comparable growth compared to 2004 sales of EUR 29,346 million, excluding sales of Mobile Display Systems, which has been treated as a discontinued operation in both 2004 (EUR 973 million) and 2005 (EUR 653 million). Fourth-quarter sales increased to EUR 9,518 million, 6% above Q4 2004. Adjusted for the upward effect of currency movements and consolidation changes, comparable sales increased by 4%. All five operating divisions contributed to the comparable sales growth, led by Medical Systems, Semiconductors and Consumer Electronics.

Income from operations for full-year 2005 amounted to EUR 1,779 million, a EUR 193 million increase compared with 2004. In Q4 2005, income from operations amounted to EUR 971 million, compared to EUR 15 million in the same period of 2004. Q4 2004 included a non-cash impairment charge of EUR 576 million for MedQuist. Q4 2005 showed significant improvement in income from operations at Semiconductors and benefited from a EUR 187 million release of a provision for post-retirement medical benefits, partly offset by charges of EUR 46 million relating to certain billing issues at MedQuist.

In the quarter, financial income and expenses resulted in income of EUR 23 million, compared to income of EUR 417 million in Q4 2004, which included a EUR 440 million gain on the sale of shares in Vivendi Universal and ASML.

Income from unconsolidated companies decreased from EUR 198 million in Q4 2004 to a loss of EUR 70 million, mainly due to charges of EUR 458 million related to LG.Philips Displays.

Cash flow from operating activities of EUR 1,889 million was slightly higher than in Q4 2004. Net inventories as a percentage of sales increased compared to Q4 2004, largely due to currency effects.

Gerard Kleisterlee,
Philips’ President and CEO:

“On the back of a strong product line-up, we accelerated growth and increased profitability. We also executed our management agenda for the year, making Philips a more focused group, able to deliver a consistent performance while continuing its transformation into a market-driven healthcare, lifestyle and technology company.

With a clear view to creating shareholder value during 2005 we took measured steps, balancing investment in growth with returning capital to shareholders. We initiated two share repurchase programs alongside two acquisitions aimed at giving us a solid footing in the key emerging growth markets of healthcare IT and solid-state lighting. We also put in place the right fundamentals to create a more competitive Semiconductors business with our decision to create a separate legal structure. We gained some good momentum this year, and are confident of meeting our targets.”

For further information please visit: http://www.investor.philips.com/reports/05_QR4_i/R_4Q05.pdf

Forward-looking statements
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 (including, but not limited to, cost savings), in particular the outlook paragraph in this report.
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, changes in law, the performance of the financial markets, pension costs, the levels of marketing and promotional expenditures by Philips and its competitors, raw materials and employee costs, changes in 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 technological changes, political and military developments in countries where Philips operates, the risk of a downturn in the semiconductor market, Philips’ ability to secure short-term profitability and invest in long-term growth in Lighting and product R&D in Medical Systems, and industry consolidation.
Statements regarding market share, including as to Philips’ competitive position, contained in this document are based on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

Use of non-US GAAP information
In presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certain non-US GAAP financial measures. These non-US GAAP financial measures should not be viewed in isolation as alternatives to the equivalent US GAAP measure(s) and should be used in conjunction with the most directly comparable US GAAP measure(s). A discussion of the non-US GAAP measures included in this document and a reconciliation of such measures to the most directly comparable US GAAP measure(s) are contained in this document.

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