Financial performance

Prior-period financial information has been restated for the treatment of the combined businesses of Lumileds and Automotive as discontinued operations (see note (3) Discontinued operations and other assets classified as held for sale) and for two voluntary accounting policy changes (see note (1) Significant accounting policies).

Management summary

The year 2014

  • In 2014, we continued to improve operational performance in most businesses, yet saw significant headwinds - ranging from geo-political crises and exchange rate fluctuations, to legal matters and the voluntary suspension of production at the Cleveland facility. In 2014, the voluntary suspension of production at our Cleveland facility and the jury verdict in the Masimo litigation strongly impacted our 2014 performance.
    At our Healthcare facility in Cleveland, Ohio, certain issues in the general area of manufacturing process controls were identified during an ongoing US Food and Drug Administration (FDA) inspection. To address these issues, on January 10, 2014 we started a voluntary, temporary suspension of new production at the facility, primarily to strengthen manufacturing process controls. The suspension negatively impacted Healthcare’s sales and EBITA in 2014.
    On October 3, 2014 Philips announced that it would appeal the jury verdict in the patent infringement lawsuit by Masimo Corporation (Masimo), in which Masimo was awarded compensation of USD 467 million (EUR 366 million). The jury verdict is part of extensive litigation, which started in 2009, between Masimo and Philips involving several claims and counterclaims related to a large number of patents.
  • Net income for the year amounted to EUR 411 million, as lower operational earnings were partly offset by lower income tax expense and higher results from investments in associates and discontinued operations.
  • Sales amounted to EUR 21,391 million, a 3% nominal decline for the year. Excluding unfavorable currency effects, comparable sales were 1% below the level of 2013, due to Healthcare and Lighting. Healthcare comparable sales declined by 2%, mainly due to Imaging Systems. Lighting comparable sales were 3% below the level of 2013, as declines at Light Sources & Electronics and Consumer Luminaires were tempered by growth at Professional Lighting Solutions. Comparable sales at Consumer Lifestyle were 6% above the level of 2013, mainly driven by double-digit growth at Health & Wellness.
  • Comparable sales in growth geographies were in line with 2013, while mature geographies declined by 1% as a result of the overall macroeconomic developments. In 2014, growth geographies accounted for 35% of total sales.
  • EBIT amounted to EUR 486 million, or 2.3% of sales, compared to EUR 1,855 million, or 8.4% of sales, in 2013. EBIT declines at Healthcare, Lighting and IG&S were partly offset by an improvement at Consumer Lifestyle.
  • Operating activities generated cash flows of EUR 1,303 million, which was EUR 391 million higher than in 2013. The increase was mainly due to higher cash inflows and working capital reductions in 2014, as well as the payment of the European Commission fine in 2013. Cash flows before financing activities were EUR 269 million higher than in 2013, as an increase in cash flows from operating activities was partly offset by higher outflows related to acquisitions of new businesses.
  • By the end of 2014, Philips had completed 41% of the EUR 1.5 billion share buy-back program.
Philips Group
Key data in millions of EUR unless otherwise stated
2012 - 2014
 
2012
2013
2014
Condensed statement of income
 
 
 
Sales
22,234
21,990
21,391
EBITA 1)
1,003
2,276
821
as a % of sales
4.5%
10.4%
3.8%
EBIT
592
1,855
486
as a % of sales
2.7%
8.4%
2.3%
Financial income and expenses
(329)
(330)
(301)
Income tax expense
(218)
(466)
(26)
Results of investments in associates
(211)
(25)
62
Income (loss) from continuing operations
(166)
1,034
221
Income from discontinued operations - net of income tax
136
138
190
Net income (loss)
(30)
1,172
411
 
 
 
 
Other indicators
 
 
 
Net income (loss) attributable to shareholders per common share in EUR:
 
 
 
basic
(0.04)
1.28
0.45
diluted
(0.04)
1.27
0.45
Net operating capital (NOC)1)
9,316
10,238
8,838
Cash flows before financing activities1)
1,174
50
319
Employees (FTEs)
118,087
116,082
113,678
of which discontinued operations
10,631
10,445
8,313
1)
For a reconciliation to the most directly comparable GAAP measures, see Reconciliation of non-GAAP information
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Earnings before interest, tax and amortization (EBITA) represents income from continuing operations excluding results attributable to non-controlling interest holders, results relating to investments in associates, income taxes, financial income and expenses, amortization and impairment on intangible assets (excluding software and capitalized development expenses). Philips believes that EBITA information makes the underlying performance of its businesses more transparent by factoring out the amortization of these intangible assets, which arises when acquisitions are consolidated. In our Annual Report on form 20-F this definition is referred to as Adjusted IFO.

Comparable sales exclude the effect of currency movements and acquisitions and divestments (changes in consolidation). Philips believes that comparable sales information enhances understanding of sales performance.

CO2-equivalent or carbon dioxide equivalent is a quantity that describes, for a given mixture and amount of greenhouse gas, the amount of CO2 that would have the same global warming potential (GWP), when measured over a specified timescale (generally 100 years).

SF6 (Sulfur hexafluoride) is used in the electrical industry as a gaseous dielectric medium.

Growth geographies are the developing geographies comprising of Asia Pacific (excluding Japan, South Korea, Australia and New Zealand), Latin America, Central & Eastern Europe, the Middle East (excluding Israel) and Africa.

Mature geographies are the highly developed markets comprising of Western Europe, North America, Japan, South Korea, Israel, Australia and New Zealand.