Laura McGonagle, CFA

Royal Philips Electronics (PHG - NYSE) is a European conglomerate based in the Netherlands and is one of the world’s largest electronics companies with sales of E27.0 billion in 2006. The company holds over 80,000 registered patents, illustrating its innovative nature. Philips’ main operating divisions are medical imaging (25 percent of sales), lighting (20 percent), domestic appliances and personal care (9 percent) and consumer electronics (39 percent).

Philips is using the cash from the divestment of non-core businesses on (1) a large share repurchase program, (2) raising its dividend 30 percent+ at the end of 2006 and (3) acquisitions that strengthen its four core divisions. Acquisitions over the past two years include three companies on Trillium Asset Management Corporation’s approved list - Color Kinetics (LED lighting), Intermagnetics General (MRI magnet systems and superconducting technology), and Lifeline Systems (elderly alert systems) - all good little companies we are sorry to see gobbled up. But the fact that Philips bought them indicates the company’s focus on emerging growth businesses.

Philips has a strong sustainability profile. The company is the world’s largest lighting manufacturer and promoting energy efficient lighting is among its top priorities. This spring the CEO of Philips’ lighting division supported the Dutch government’s effort to phase out incandescent light bulbs. Philips is a leading producer of compact fluorescent bulbs and with its acquisition of Color Kinetics is now the leader in even more efficient LED lighting systems. According to KLD, Philips emphasizes energy efficiency as a fundamental consideration for non-lighting products as well as internal operations. In 1994, the company launched its EcoDesign program to minimize product weight, reduce packaging, increase recyclability and lifespan, and optimize energy efficiency. Products that meet these criteria are part of the Green Flagship line, which accounted 6.6 percent of 2005 revenues. Product examples include cadmium/lead and mercury-free phones, flat screen TVs that use 39 percent less energy and residential solar systems.

www.philips.com/global

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