Philips 2006 Annual Report Download - page 69

Philips Annual Report 2006 69
in 2006 was Philips’ international retail approach,
which
has leveraged the combined retail competencies
of the
Philips Group through global, multi-disciplinary
key account teams designed around the customer. As
a result, CE continues to identify, select and grow its
business with key accounts and to invest in advanced
integral world-class key account management capabilities,
systems and tools. Philips’ top 20 international retail
accounts represent approximately one-third of Philips’
retail business, and this proportion is expected to rise
to just under one-half by 2009.
Markets
In 2006, CE secured its overall market share and
strengthened positions in key categories such as total
TV with a number of product introductions and marketing
initiatives. In Europe, Latin America and North America,
sales increased during 2006, mainly driven by strong
FlatTV sales. In Asia Pacifi c, however, sales growth was
affected by the increased competitive dynamics of the
region, fuelled by the continuing rise of Asian brands,
and lower Mobile Phones sales.
The consumer electronics industry experiences
seasonality, with higher sales in the fourth quarter
resulting from the holiday sales.
2006 fi nancial performance
Sales for CE totaled EUR 10,576 million in 2006,
nominally 1% and comparably 5% above the 2005 level.
The growth in sales was led by Connected Displays, driven
by the ongoing transition from CRT to FlatTV, and by
the Peripherals & Accessories business. The remaining
businesses, however, showed a decline in sales due to
a contracting market (Entertainment Solutions), low
market demand for Mobile Phones as well as time-
to-market issues in Home Networks.
On a geographic axis, sales growth was particularly
strong in Europe and North America, while sales
declined in Asia Pacifi c, mainly due to lower sales
of Mobile Phones.
As a result of CE’s focus on margin management, the
division realized an annual EBIT margin of 3.9% of sales,
just slightly below the 4% target set for the division.
The EBIT margin in 2005, excluding the EUR 136 million
gain on the sale of the monitor and low-end fl at TV
manufacturing business to TPV, was 3.6%. In value, the
CE has also continued to strengthen its Peripherals &
Accessories business in order to capitalize on market
growth in this segment. In 2006, Philips acquired
Power Sentry, which markets power-surge protectors,
power strips and UPS battery back-ups. In 2005, the
global plug-in power-surge protector market was valued
at approximately USD 640 million, with the United States
representing approximately 80% of the global market. It
is estimated that over the next fi ve years the global
market will grow annually by approximately 9%.
Relevant innovation
CE’s portfolio approach is driven by “sense and simplicity”
and the principle of ‘relevant innovation’: the development
of products and services based on detailed insights into
consumers’ needs and desires. Relevant innovation will
be a key strategic driver as CE continues to build on
its sustainable performance in 2007. To this end, CE will
continue to drive business creation by combining the
resources of Philips’ research and development, its
healthcare, lifestyle and technology incubator programs
as well as consumer insights gained from its Consumer
Experience Centers. CE will also innovate through
partnerships, as in the area of VoIP, where Philips has
redefi ned the existing DECT phone category by partnering
with Skype™ and MSN™ to bring VoIP phones to market,
enabling free telephony for millions of consumers around
the world. Relevant innovation will also harness new
areas of innovation such as High-Defi nition TV,
Blu-ray and IPTV in order to deliver the right mix
of content and services to consumers.
CE intends to
continue to deliver outstanding experiences such as the
immersiveness of Ambilight and amBX, as well
as intuitive
user interfaces that make it easy to navigate around
growing content and service choices.
Recommended brand
The FlatTV category, and in particular Ambilight, is
a strong driver of brand equity. Ambilight has proven
to have some of the highest Net Promoter Score ratings
– a measure of ‘recommended brand’ preference – in the
consumer electronics industry. By leveraging ‘recommended
brand’ as a further strategic driver and continuing to
apply “sense and simplicity”, CE will maintain its focus
on creating distinctive Philips propositions that drive
sustainable value creation.
Transformational leadership
Transformational leadership – getting the best out of the
talent and competencies across the organization – will
also be a strategic driver in 2007. A benchmark for this
54 The Philips sectors
Consumer Electronics
86 Risk management 100 Report of the Supervisory Board 110 Financial Statements