Philips 2008 Annual Report Download - page 11

Take decisive steps to structurally deal with
unsatisfactory EBITA margins in Connected
Displays (Television)
In North America we entered into a five-year
minimum brand licensing agreement with Funai
Electric Company of Japan, under which Funai will
assume responsibility for all Philips-branded consumer
television activities in the United States and Canada.
Toward the end of the year this agreement was
extended, adding audio-video categories in the US
and TV and audio-video categories in Mexico.
... decisive action to address profitability ...
We drove further portfolio reductions around the
world, for instance in Australia, New Zealand and
South Africa, and announced our withdrawal from
plasma-based TVs. We also signed a letter of intent
regarding our PC Monitors business, creating a brand
licensing agreement with TPV Technology for the
global distribution and marketing of IT Display products.
Given the current economic turmoil, we will continue
to evaluate whether more action is required in 2009.
Going forward, we have a solid TV business – with
leadership positions in selected geographic markets
– that is driven by innovation and margin rather
than volume.
Improve productivity as a driver for margin
expansion
Our progress on this point was limited as our efficiency
programs were mitigated by lower earnings in our
operational sectors due to the economic downturn.
The restructuring and change programs across our
sectors will put us in a stronger position, but productivity
remains a key focus point for management.
Step up resource investment in developing
markets to accelerate growth in excess of 2x GDP
In 2008, we further increased our talent, marketing
and R&D investments towards the emerging markets.
In addition, we made a number of acquisitions in
Brazil, China and India, designed to strengthen our
position in healthcare in emerging markets.
... emerging market sales growth of 12% and 8%
in Healthcare and Lighting respectively ...
Excluding Television, which we manage for margin
instead of volume, our sales growth in emerging markets
amounted to 6%, approximately in line with the latest
2x world GDP growth estimates. I am particularly
pleased with the way our Healthcare and Lighting
businesses weathered the economic downturn, with
comparable sales growth of 12% and 8% respectively
in the emerging markets for the year.
Increase innovation focus in support of Philips’
growth ambition
In 2008, sales of innovative products – i.e. products
introduced within the last year (for B2C products)
or three years (for B2B products) – amounted to 58%
of total sales, again up 2 percentage points and more
than double the 2003 level, but still not giving us the
amount of new business we are looking for.
In difficult economic times like these, innovation is
more crucial than ever to provide a competitive edge.
In 2009 we will therefore – notwithstanding our focus
on cash management – sustain our spending levels on
R&D and marketing, while intensifying our efforts to
increase the speed and productivity of innovation.
Sustainability continues to be a key driver of
innovation. Sales of Green Products rose
to 23%
of overall sales, up from 20% in 2007, representing
an
important, growing part of our revenue stream.
Our investment in Green Innovations amounted to
over EUR 280 million in 2008, on track for a cumulative
amount of EUR 1 billion to be invested by 2012.
Continue to drive a culture of superior
customer experience
Ensuring a superior customer experience is absolutely
crucial to the realization of our ambitions. The Net
Promoter Score (NPS) is our single key metric of
customer experience. NPS measures the answer to
one simple question: “How likely is it that you would
recommend this company/product to a friend or
colleague?” Compared to 2007, we achieved NPS
leadership in an additional 4% of our businesses on
a comparable basis. During 2008, we also expanded
the NPS measurement to now cover all our strategic
areas, and at present 47% of our key businesses have
industry-leading scores. Especially notable is our strong
performance in the emerging markets such as Brazil,
Russia, India and China. We are still committed to
reach our 2010 NPS target and to this end we will drive
customer experience improvement and execute strategic
moves to continue to secure leading NPS positions.
We also realized 8% growth of our total brand value
in the annual ranking of the top-100 global brands
compiled by Interbrand – the fifth increase in a row.
In 2004, when we launched our “sense and simplicity”
brand campaign, Philips’ total brand value was USD
4.4 billion. This has steadily increased to a total value
of USD 8.3 billion in 2008. Such consistent improvement
clearly illustrates that our “sense and simplicity”
brand promise, founded on deep, validated insights
into customer and end-user needs, continues to
resonate with customers.
23%
of sales came from
Green Products
58%
of sales came from
innovative products
introduced in the
last three years
Philips Annual Report 2008 11
122
Performance statements
114
Supervisory Board report
110
Our leadership
94
Risk management
70
Our sector performance