Philips 2004 Annual Report Download - page 40

The Automotive business of Philips Optical Storage is profitable
and developing according to plan. The Automotive line is a leader
in its industry and has grown significantly over the past years,
mainly due to the switch from tapes to CDs and DVDs and the
increasing application of navigation systems in cars.
NAVTEQ is a leading provider of digital map information and
related software and services used in a wide range of navigation,
mapping and geographic-related applications, including products,
systems and services that provide maps, driving directions,
turn-by-turn route guidance, fleet management and tracking and
geographic information. As a result of the IPO in August,
NAVTEQ was deconsolidated as from that date.
Unallocated
Unallocated comprises the costs of the corporate center –
including the Company’s global brand management and
sustainability programs – as well as country and regional overhead
costs.
Property, plant and equipment
Philips owns and leases manufacturing facilities, research facilities,
warehouses and office facilities in numerous countries over the
world.
Philips has over 140 production sites in 32 countries. Philips
believes that its plants are well maintained and, in conjunction with
its capital expenditures for new property, plant and equipment, are
generally adequate to meet its needs for the foreseeable future.
For the net book value of its property, plant and equipment and
developments therein, please refer to note 15 ‘Property, plant and
equipment’ of this Annual Report. The geographic allocation of
assets employed, as shown in note 35, entitled ‘Information
relating to product sectors and main countries’, of this Annual
Report, is generally indicative of the location of manufacturing
facilities. The headquarters in Amsterdam are leased. The
information shown in note 26, entitled ‘Commitments and
contingent liabilities’, of this Annual Report, is partly related to the
rental of buildings.
For environmental issues affecting the Company’s properties,
please refer to note 26, entitled ‘Commitments and contingent
liabilities’, of this Annual Report.
The Group strategy is to increase profitability through
re-allocation of resources towards opportunities offering more
consistent and higher returns, in every product division. The
Semiconductors division has consolidated SSMC as of 2004. The
impact on net capital expenditures was EUR 216 million, and
Semiconductors will continue investing in this facility. However,
Semiconductors has adopted a capital-efficient manufacturing
strategy in order to be more flexible and effective throughout
industry cycles. It will continue to outsource a large percentage of
future capital needs, also using its Crolles2 and TSMC
partnerships.
The capital expenditures in progress are mainly driven by:
- Semiconductors, for ongoing enhancements of existing
facilities, especially following the SSMC consolidation, while
around one fourth was on new technologies and new products;
- Lighting, on process enhancements, and around one third on
capacity improvements, especially for Automotive and UHP
products;
- Medical Systems, for investment in product enhancements and
tools, especially in imaging systems. It expects to invest in care
cycles such as acute care, cardiovascular disease, oncology and
neurology, and in extending care to the home;
- Other Activities (Research, Optical Storage and the ongoing
construction of the High Tech Campus in Eindhoven);
- DAP, for new products investments, mainly in Consumer
Health & Wellness.
Capital expenditures in progress are generally expected to be
financed through internally generated cash flows. For a description
of the geographic spread of capital expenditures, please refer to
page 175 of this Annual Report.
For a description of the principal acquisitions and divestitures of
the Company since the beginning of the last three financial years,
please refer to note 1 ‘Acquisitions and divestments’ of this Annual
Report.
39Philips Annual Report 2004