A challenging year in 2009

Looking back, 2009 was a testing year for Philips. Nevertheless, in the most challenging economic environment in decades, we acted swiftly and decisively to adjust our cost structure and working capital to market conditions. We did this to maintain profitability and to make sure we emerge from the recession in the best possible shape to capitalize on future economic growth. The effects of our actions became increasingly visible in our earnings and cash flow performance, especially in the second half of the year.

Despite tough times, we continued to invest in innovation, in our brand and in mergers and acquisitions. These investments are essential for our future competitiveness. In view of macro-economic developments, Philips also accelerated planned initiatives to further increase organizational effectiveness and to lower fixed cost by streamlining operations and simplifying the structure. In 2009 we announced another EUR 450 million of restructuring. Combined with the restructuring of 2008 this will lead to a reduction in our 2010 fixed cost base of well over EUR 700 million compared to the run rate in 2008.

As our Incubator activities were maturing and increasingly aligned with the growth plans of our individual sectors, all activities of the Incubators, as of Q3 2009, were charged to Research & Development cost of the business sectors. In conjunction with this, the activities of Group Management & Services and the remaining Innovation & Emerging Businesses were reported under one reporting segment: Group Management & Services.