Philips India

The Directors submit their report and audited accounts for the year
 ended December 31, 2007.
 
 For India was a year of ups and downs, mostly of expectations. The
 economy surged by over 9% in the fourth quarter of 2006, leading many
 to believe that growth rate could be sustained, if not exceeded. But by
 mid-year, we had indications of problems in US financial markets that
 could have serious consequences for the global economy. Today India is
 a $ I trillion economy, growing at an average of 8% a year. With over a
 billion consumers, a growing middle class and world-class
 entrepreneurs, we believe India is best positioned among all emerging
 economies to withstand the risk of global downturn. And, as one of
 Indias most respected consumer brands, we are at the heart of the
 biggest all-weather growth stories.
 
 Your Companys performance during the year was strong, with robust top
 line growth and high quality earnings. All business segments posted
 strong growth in revenue and increase in respective market share. The
 Lighting business continued to perform strongly both in respect of
 turnover and profitability. Consumer Electronics recorded a growth of
 20%, Medical business grew by 21% and Domestic Appliances and Personal
 care business grew by 37% during the year 2007. The profitability of
 the Consumer Electronics and Medical business improved substantially as
 compared to the previous year. Philips strategy globally is to focus on
 three key areas, viz. Growth, Talent and Simplicity. India will
 continue to be a key market for Philips from the growth and development
 perspective.
 
 1.  FINANCIAL PERFORMANCE
 
 1.1.  RESULTS
 
                                                       RS. Min.
                                               2007           2006
 
 Gross Income                                 29,363        26,735
 Operating profit                              2,456         1,485
 Exceptional items (net)                         438         1,544
 Profit before tax                             2,894         3,029
 Fringe benefit tax                              (38)          (61)
 Provision for current tax                      (939)         (824)
 Provision for deferred tax                      (14)          (14)
 Profit after tax                              1,903         2,130
 Transfer to General Reserve                     190         1,970
 
 1.2.  DIVISIONAL SALES
 
                                                2007           2006
 
 Lighting                                      12,626        10,970
 Consumer Electronics                           8,356         6,962
 Medical Systems                                3,415         2,804
 Domestic Appliances & Personal Care            1,780         1,300
 Innovation Campus                              2,395         3,782
 Others                                           334           668
 Total                                         28,906        26,486
 
 Sales for the year ended December 2007 reported a nominal growth of
 around 10%, but the operating profit grew by 65% largely due to changes
 in distribution pattern and better product mix. Sales on a comparable
 basis, i.e. after excluding Semi Conductors, has grown by 19%. Profit
 before tax was lower as compared to the previous year on account of a
 sharp reduction in income from exceptional items.
 
 1.3. FINANCE & ACCOUNTS
 
 Your Company delivered a strong performance in cash generation during
 the year, driven by the strong operating performance, better
 realization and working capital management and sale of assets/
 business. The cash surplus was invested in financial instruments in
 accordance with the policy of the Company. In terms of the provisions
 of Investor Education and Protection Fund (awareness and protection of
 investors) Rules 2001, Rs.  25.82 lakhs of unpaid/unclaimed dividend
 was transferred during the year to the Investor Education and
 Protection Fund.
 
 2.  DIVIDEND
 
 Your Directors recommend payment of Rs. 2.0 per share as dividend on
 the fully paid equity shares for the financial year ended 31 December
 2007. This will absorb Rs. 140 million as dividend and Rs. 28 million
 as dividend tax.
 
 3.  BUSINESS PERFORMANCE
 
 The Notes to the Profit and Loss Account for the year provide segment
 results. Required disclosure is made below for Lighting, Consumer
 Electronics, Innovation Campus (Software), Medical Systems, Domestic
 Appliance and Personal Care divisions.
 
 3.1 LIGHTING
 
 The Division grew more than 15%, making it the sixth year of
 consecutive double digit growth. All the business groups of the
 division grew in double digit profitability for the year. This growth
 helped the division to improve the market share of 30% in the Industry,
 despite the growth of existing players and the entry of new lighting
 and non - lighting players in the Industry.
 
 New products in all categories were introduced. Recently created
 avenues/ channels such as rural & replacement markets were leveraged
 further to improve reach and sales. On the professional front, new
 stadia, viz. Ranchi, Bhopal, airport lighting and major infrastructure
 projects were executed. Inroads were also made into the areas of Retail
 and Solid State lighting.
 
 On the manufacturing side, manufacturing capacity in CFL was enhanced
 to cater to the needs of the local Market.  Reorganisation of the
 Industrial Activity in the Lighting Electronics business is completed.
 The (Global) company is considering the setting up of Global
 Manufacturing capacities and (product) Development Centres in India in
 the near future.
 
 Going forward in 2008, the division has plans to increase its
 profitability as in the previous year. The division intends  to reap
 the benefits of the intended focus on energy savings in Lighting, the
 current boom in infrastructure as also the Commonwealth Games scheduled
 for 2010.
 
 3.2 CONSUMER ELECTRONICS
 
 The Consumer Electronics Division recorded a strong performance in
 2007, registering a growth of 20%. This was aided by strong
 performances in all the business segments, viz., Video & Multimedia
 Applications (VMA), Audio & Multimedia Applications (AMA) and Colour
 Televisions (CTV), enhanced by significant improvements in operational
 efficiencies and strong business controls.
 
 Colour Television (CTV) business grew by 23% aided by 6 times value
 growth in the LCD category. The CTV market in India is witnessing a
 rapid transition from the traditional cathode ray tube TV to LCD Flat
 TV with consumers from the upper middle class as well as the middle
 class segments opting for the latter. This is propelling the growth in
 the Consumer Electronic industry and going by market estimates, the LCD
 TV market is likely to cross the current CRT TV market size by year
 2010.
 
 The Company established the LCD TV business quite strongly in 2007 and
 clearly sees a window of opportunity to become a significant brand in
 this space. LCD TV is perceived by the Indian consumer as a technology
 driven product and Philips in India has the image of being a technology
 driven company. Our strategy in CRT TV will be to continue to have an
 opportunistic play with a clear focus on the growing categories, i.e.
 21 & 29 Real Flat.
 
 3.3 MEDICAL SYSTEMS
 
 The Medical Systems Division operates in the Diagnostic Imaging
 segment, which includes CT, MRI, X-rays, Cardiovascular Systems,
 Nuclear Medicine, PET-CT and Ultrasound Imaging Systems, and is also a
 significant player in patient monitoring.
 
 In 2007, the Division recorded strong growth in most business lines,
 winning major contracts across its entire product range, including
 those from major private hospital groups as also from large Government
 postgraduate teaching hospitals. Strong account management backed by
 excellent customer focus has been the key success factor of the year.
 
 There was excellent growth in the Magnetic Resonance Imaging (MRI)
 business during the year 2007 in both 1.5 and 3 Tesla segments.
 Cardiovascular X-ray (Cath labs) registered a record growth both in
 volume and value and was a leader in the segment Computerised
 Tomography (CT) systems continued to do well during 2007. The
 Cardiovascular Ultrasound segment, especially the Live 3D echo market,
 was dominated by Philips and 4-dimension systems contributed to the
 success of the Ultrasound equipment group in 2007. The Customer Support
 group has performed consistently well, meeting and often exceeding
 customer expectations, resulting in good loyalty-based repeat orders.
 
 3.4 DOMESTIC APPLIANCES & PERSONAL CARE
 
 The Domestic Appliances and Personal Care Division sales grew by 37%
 during the year. Innovative products such as Intelligent water
 purifier and Hands Free Intelligent Indian Food Processor were
 launched during the year. The business established the highest ever
 brand preference for its lead categories such as mixer grinders,
 juicers & irons.
 
 In a year of high launch investments and increase in raw material price
 the business maintained its profitability. The outlook for 2008 is one
 of stronger growth and continued emphasis on new product launches.
 
 3.5 INNOVATION CAMPUS (PIC)
 
 PICs strength at the end of 2007 was 978 as compared to 940 at the end
 of 2006. The retention rate remained reasonable as compared to the IT
 industry average. During the year the Healthcare group expanded its
 activities to cover not only software engineering but also electrical
 and mechanical fields. Sales (total deliveries) amounted to Rs. 2395
 million as compared to Rs. 3,782 million in 2006. However, sales in
 2006 included deliveries of Rs. 1381 million in respect of the
 Semiconductor Division which was spun off to NXP Semiconductors. On a
 comparable basis, there was a nominal decline in sales from Rs. 2,401
 million in 2006 to Rs. 2395 million in 2007 - the primary reason being
 the reductions in Consumer Lifestyle group.
 
 4 BUSINESS RESTRUCTURING
 
 Globally, Koninklijke Philips Electronics N.V. (KPENV), the promoter
 of your Company, has announced a simplified organizational structure in
 three market sectors, viz Philips Healthcare, Philips Lighting and
 Philips Consumer Lifestyle. This new organizational structure came into
 effect from January 1, 2008. Healthcare and Lighting are largely
 unchanged. The creation of Consumer Lifestyle is a major event in
 Philips history: Domestic Appliance and Personal Care division (DAP)
 and Consumer Electronics division (CE) will cease to be separate
 businesses and will be fully integrated to form the Consumer Lifestyle
 sector.
 
 5 NEW CORPORATE OFFICE
 
 As a part of the Companys One Philips initiative, your Board has
 decided to move its Corporate Offices to a new state-of-the-art office
 space at DLF Cyber City, Gurgaon. This move will integrate all existing
 business offices of the Company at Pune, Delhi and Mumbai and the
 process is likely to be completed by end 2008.
 
 A unified corporate office will help to further integrate business
 processes and leverage scale and synergies across the organization.
 Working from one office, at one location, offers managers the
 opportunity to communicate and interact across divisional and
 functional boundaries. By being together, the management will have
 opportunities for interaction with different parts of the Company to
 create a stronger, more cohesive Philips in India. It will enable the
 
 Company to drive its key agenda of growth and support with larger
 strength - the parent strategy of Vision 2010.  The move will be cash
 flow positive, since it will largely be funded out of realization of
 the Companys two residential complexes located at Mumbai and Pune.
 
 6.  INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
 
 Your Company remains committed to maintaining internal controls
 designed to safeguard the efficiency of operations and security of our
 assets. Accounting records are adequate for preparation of financial
 statements and other financial information. Through our internal audit
 processes at divisional and corporate levels, both the adequacy and
 effectiveness of internal controls across the various businesses and
 compliance with laid-down systems and policies are regularly monitored.
 A trained internal audit team also periodically validates the major
 IT-enabled business applications for their integration, control and
 quality of functionality. The Audit Committee of the Board met
 periodically during the year to review internal control systems as well
 as financial disclosure.
 
 7.  CORPORATE SOCIAL RESPONSIBILITY
 
 Your Company has been able to make significant contributions in
 Economic, Environmental and Social areas by tying up with effective
 social partners / NGOs, in the year 2007. Arogyakiran, Healthcare
 Initiatives & Tsunami Relief Projects and Rehabilitation are some of
 the ongoing projects supported by Philips. Project Arogyakiran focuses
 on providing primary healthcare to rural villages near Kolkata and
 Vadodara. Over the last three years 1020 pregnant women were identified
 and supported with Ante Natal Care (ANC) and Post Natal Care (PNC) at
 the Child in Need Institute (CINI), Kolkata.
 
 With the help of Trust for Reaching the Unreached, a voluntary
 organization based at Kural village near Vadodara, your Company makes
 available cost-effective and easily accessible primary and preventive
 healthcare to 16 villages with a population of nearly 38,000 people,
 through 4 dispensaries run by qualified doctors who provide subsidised
 diagnostic care to patients. This organization also arranges referrals
 for needy patients.
 
 8.  NEW BUSINESS INITIATIVES
 
 The New Business Development function is working towards the
 realisation of the Companys growth ambitions up to the year 2010. It
 focuses on new business areas in the Lifestyle and Healthcare domain,
 new product development and/or new product portfolio extensions and
 addresses strategic initiatives to penetrate and develop markets in the
 Indian Subcontinent, as well as some key One Philips initiatives such
 as Key Sector Management in retail, healthcare and hospitality.
 
 9.  BUY BACK OF EQUITY SHARES
 
 Pursuant to the provision of Article I2A of the Articles of Association
 of the Company and in accordance with the provision of Section 77A and
 77B and all other applicable provisions, if any, of the Companies Act
 1956, and the provisions contained in the Private Limited Company and
 Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999,
 consent of the Company is sought for the buy back of fully paid up
 equity shares of the face value of Rs 10/- each up to a maximum of
 6,923,076 equity shares and cash outflow not exceeding Rs. 1800 million
 (Rs. One thousand eight hundred million only) at a price not exceeding
 Rs. 260/- (Rs. Two hundred sixty only) per equity share. The Buy-back
 will provide an option to the shareholders to sell their shares.
 
 10.  HUMAN RESOURCES AND INDUSTRIAL RELATIONS
 
 Employee relations were cordial during the year. The Company continues
 to invest in the development of its employees by way of various
 internal and external training programmes.
 
 As part of People Development efforts, the Learning & Development needs
 of employees were identified and addressed on an ongoing basis. In
 addition to the ongoing leadership development programmes, the focus
 was on development of functional skills with emphasis on Sales and
 Marketing. Some of the key programmes rolled out included Key account
 management, Direct dealer management, and Service excellence workshops.
 
 A unique Think Simplicity contest was launched around, new brand
 positioning Sense and Simplicity. 
 
 The purpose was to encourage employees to realize and appreciate the
 value of Simplicty in their daily lives. The response was overwhelming
 - 1097 entries, 19 unit level winners were felicitated and the 7
 national winners participated in the Simplicity event in London.
 
 Information under Section 217 (2A) of the Companies Act 1956, read with
 the Companies (Particulars of Employees) Rules, 1975, forms part of
 this report.
 
 11.  CONSERVATION OF ENERGY, FOREIGN EXCHANGE OUTGO AND TECHNOLOGY
 ABSORPTION
 
 Information pursuant to Section 217(1)(e) of the Companies Act, 1956,
 is provided in the Annexure to this report.
 
 12.  ENVIRONMENT, ENERGY, OCCUPATIONAL HEALTH & SAFETY
 
 Your Company is committed to implementing the Philips Sustainability
 Policy and is striving to continuously improve its contribution to the
 environmental, economic and social aspects of sustainability. The
 manufacturing units of your Company are actively involved in
 implementing the Philips Eco-Vision III (2006-2009) programme. All
 manufacturing units have established and are maintaining ISO-14001
 certified environmental management systems.
 
 Products and Systems introduced by your Company go.through a process of
 EcoDesign. Your Company has also initiated several programmes to
 improve the Health and Safety of employees working in the manufacturing
 units and offices.
 
 13.  DIRECTORS RESPONSIBILITY STATEMENT
 
 As required under Section 217 (2AA) of the Companies Act, 1956, your
 Directors confirm that:
 
 i) in the preparation of the annual accounts, applicable accounting
 standards have been followed;
 
 ii) the Directors have selected such accounting policies and applied
 them consistently and made judgments and estimates that are reasonable
 and prudent, so as to give a true and fair view of the state of affairs
 of the Company as on December 31, 2007 and of the profit of the Company
 for the year ended December 31, 2007;
 
 iii) the Directors have taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of this Act, to safeguard the assets of the Company and to
 prevent and detect fraud and other irregularities;
 
 iv) the Directors have prepared the annual accounts on a going concern
 basis.
 
 The Companys Internal Auditors have conducted periodic audits to
 provide reasonable assurance that the Companys established policies
 and procedures were followed. The Audit Committee constituted by the
 Board meets regularly with Internal Auditors and also with the External
 Auditors to review internal control and financial reporting issues.
 
 14.  DIRECTORS
 
 Mr. Rajeev Bakshi resigned from the Board effective April 19, 2007,
 after serving on the Board for over one and a half years. The Board
 records its deep appreciation of the valuable contributions made by Mr.
 Bakshi to the Boards deliberations. The Board, at its meeting held on
 April 19, 2007, appointed Mr. Murali Sivaraman as Additional Director
 and Managing Director designate with effect from July 2, 2007.
 
 Mr. K Ramachandran, Vice-Chairman & Managing Director of your Company,
 resigned from the Board with effect from October 3, 2007, following his
 retirement from the Company. Your directors wish to record their
 appreciation of the long and meritorious services rendered by him. Mr.
 Murali Sivaraman was appointed as Vice-Chairman and Managing Director
 of the Company with effect from October 3, 2007. The Central Government
 has approved the appointment of Mr. Sivaraman which is valid till the
 conclusion of the ensuing Annual General Meeting and will be further
 extended subject to the approval of Shareholders at the said meeting.
 Due notice has been received from members pursuant to Section 257 of
 the Companies Act, 1956, of their intention to move resolution for the
 appointment of Mr. Murali Sivaraman as a Director of the Company.
 
 The Board extended the term of office of Mr. Vineet Kaul as a
 Whole-time Director of the Company, for a further period of five years
 from January 30, 2008 or till the age of retirement, whichever is
 earlier. Appropriate resolution seeking your approval to such extension
 and remuneration of Mr. Vineet Kaul appears in the Notice convening the
 78th Annual General Meeting of the Company.
 
 Mr. Alexius Collette retires by rotation at the ensuing Annual General
 Meeting. The Board recommends his re- appointment.
 
 15.  AUDITORS
 
 Messrs. BSR & Co. retire as auditors of the Company and, being
 eligible, offer themselves for re-appointment Your Directors recommend
 their re-appointment for the ensuing year.
 
 16.  COST AUDITORS
 
 The Central Government has directed your Company to carry out an audit
 of the Companys cost accounts in respect of electric lamps, pursuant
 to the provisions of Section 233B of the Companies Act, 1956.
 Accordingly, your Directors have approved the appointment of Messrs. R.
 Nanabhoy & Co., a firm of cost accountants, to conduct the audit for
 the year ending December 31, 2008.
 
 17.  GENERAL
 
 Your Directors acknowledge the close cooperation and support your
 Company has received during the year from the employees, members, its
 parent company Koninklijke Philips Electronics N.V., its bankers, and
 business partners including suppliers, co-makers and the trade.
 
                                        On behalf of the Board
 
                                        S. M. Datta
 New Delhi, March 11, 2008              Chairman