Philips 2005 Annual Report Download - page 75

Philips Annual Report 2005 75
Market developments
Overall, medical markets showed strong growth in 2005,
driven by strong demand in Asia Pacifi c and Latin America.
North America and Europe also showed growth, but at
a slower rate. The growth is fueled by an ageing world
population, new technologies for earlier and better diagnoses ,
and the possibility of minimally or non-invasive imaging
procedures. Healthcare reforms in some countries, as well
as increased price competition among major players, may
have a medium-term impact on future market growth.
Business developments
Medical Systems aims to become a clinically focused company
offering complete systems for diagnosis and treatment.
In pursuit of this goal, Philips completed the acquisition
of Stentor, a leader in the distribution, management and
storage of digital medical images, in 2005. Medical Systems
intends to further expand its portfolio beyond its current
offering of diagnostic imaging, monitoring and medical IT
while maintaining its focus on innovation and operational
excellence.
Total currency-comparable order intake in 2005 remained
very strong, with 14% growth compared to 2004, and
included solid order intake for the new iSite® PACS from
Stentor. In the fourth quarter, Philips signed a EUR 173
million, 15-year contract with the Royal Belfast Hospitals
of the United Kingdom to manage equipment and services.
Financial performance
Sales increased compared to 2004, showing nominal
growth of 8% and comparable growth of 7%, driven by all
businesses except MedQuist and Medical IT (which was
partly impacted by the Stentor acquisition due to the
revenue delay in anticipation of the new iSite® PACS from
Stentor). Double-digit growth was visible in Computed
Tomography (due to strong demand for new products
such as the Brilliance CT 40- and 64-slice), Ultrasound
(due to strong demand for the new products iE33, HD11
and HD3), X-ray and Cardiac & Monitoring Systems.
All regions contributed to this sales growth, especially
Asia Pacifi c and Latin America.
EBIT of Medical Systems in 2005 was negatively impacted
by higher research and development expenditures (specifi cally
in the areas of molecular medicine and new sensor
technologies) and additional costs related to the acquisition
of Stentor. Research and development expenditures as a
percentage of sales increased from 8.1% in 2004 to 8.3%
in 2005.
MedQuist posted a negative EBIT of EUR 87 million in 2005
(2004: profi t of EUR 12 million), of which some EUR 50
million was attributable to (current and expected)
customer accommodation payments.
EBIT in 2004 was negatively impacted by the EUR 590 million
impairment charge at MedQuist and the EUR 133 million
net litigation settlement for Volumetrics. Adjusted for
MedQuist in 2004 and 2005, and Volumetrics in 2004, EBIT
of Medical Systems increased by EUR 20 million in 2005.
Cash fl ow before fi nancing activities decreased by
EUR 111 million and was impacted by the acquisition-
related cash outfl ow for Stentor of EUR 194 million.