Sales increased 5% to EUR 7,626 million
Philips recorded net income of EUR 1,436 million (EUR 1.14 per share), compared with net income of EUR 1,172 million (EUR 0.92 per share) in the corresponding period of 2004. The increase was primarily attributable to the sale of several stakes which together yielded a non-taxable gain of EUR 1,086 million. Q3 2004 included a EUR 635 million non-taxable gain related to the NAVTEQ IPO.

Sales increased to EUR 7,626 million, 5% above Q3 2004. Adjusted for the upward effect of currency movements and consolidation changes, comparable sales increased by 4%, driven by strong growth in all main product divisions except Semiconductors. Sequential sales at Semiconductors did, however, increase by 7% in US dollar terms.

Income from operations amounted to EUR 442 million, compared to EUR 1,019 million in the same period of last year. Q3 2004 included the gain related to the NAVTEQ IPO and a EUR 51 million property damage insurance settlement. The current quarter included a EUR 136 million gain on completion of the deal with TPV Technology.

Financial income and expenses resulted in income of EUR 190 million, an improvement of EUR 260 million compared to Q3 2004. This improvement mainly resulted from the sale of the remaining stakes in Atos Origin and Great Nordic.

Unconsolidated companies contributed EUR 907 million to net income; this included the gains of EUR 460 million and EUR 121 million on the sale of TSMC and LG.Philips LCD shares respectively. The result of LG.Philips LCD also included a dilution gain of EUR 189 million (EUR 108 million in Q3 2004).

Cash flow from operating activities increased to EUR 496 million, compared to EUR 292 million in Q3 2004. Inventories as a percentage of sales amounted to 13.2%, a record low for the third quarter.

Gerard Kleisterlee,

Philips' President and CEO:
"After a slower first half-year, we are pleased to see growth across Philips has picked up in the third quarter as we improved our profitability. Thanks to the solid underlying performance during the quarter, we are on track with our financial targets and delivering on our commitments. We were able to outperform weaker consumer markets thanks to innovative product concepts like the new Flat TV and shaver ranges. We also saw improving results from our Semiconductors business as our renewal program begins to take effect. In addition, our Medical Systems business continued to show strong revenue growth.

During the quarter, we made progress in implementing our strategy by further reducing our stakes in other companies. We used some of the proceeds to acquire Stentor, a leading healthcare IT company, and to support our share buy-back program. We also announced a significant investment in the emerging technology of solid-state lighting through the planned acquisition of a further 47% stake in Lumileds."
To read the full report, please visit http://www.philips.com/mt/q32005mailing.