Philips 2008 Annual Report Download - page 8

Message from
the President
Dear stakeholder
2008 was not exactly the year of progress that you
and I had envisaged for Philips 12 months ago. Our
company’s transformation over the last few years has
definitely produced a balanced, stronger and more
resilient set of businesses active in the field of health
and well-being, and these continued to improve their
position in the market in 2008. But the acceleration
of the economic downturn in the course of the year,
particularly in the fourth quarter, took an increasing
toll on several of our businesses that are sensitive
to early cycle effects, especially those with direct
or indirect consumer market exposure, requiring
us to take decisive action.
Nevertheless there has been progress on several
fronts. With the successful integration of the two
largest acquisitions in Philips’ history – Respironics
and Genlyte – more than 50% of our revenue is
generated from businesses with global leadership
positions; up from less than 40% in 2007. And a
steady 31% of our sales continues to come from
emerging markets. All that supported by a quality
brand that gained 8% in value in 2008 alone and
a workforce
reaching high-performance benchmark
engagement levels.
Performance
The increased strength and resilience of our business
portfolio was particularly evident in Healthcare,
which, in a very challenging operating environment,
achieved excellent results – higher comparable sales
and an improvement in underlying EBITA – and is on
the way to becoming our largest sector.
The strong downturn in the latter part of 2008
affected the Group’s top line, particularly at Consumer
Lifestyle and in our OEM businesses in Lighting, partly
offset by continued healthy growth at Healthcare,
leading to a moderate overall sales decline of 2.7%.
EBITA was down on 2007, largely due to a decline
in sales-driven earnings at Consumer Lifestyle and
Lighting, as well as an asbestos-related settlement
charge. We also extended and accelerated the
restructuring and change programs across our
Healthcare, Consumer Lifestyle and Lighting sectors,
further impacting EBITA. These programs are on
track to deliver cost savings of approximately
EUR 400 million on an annual basis, with effect
from the second half of 2009.
We also moved quickly to extend our cash management
initiatives, including rigorous management of working
capital. This enabled us to end the year with a robust
balance sheet supported by strong operating cash
flows of almost EUR 1.5 billion.
Furthermore, we continued with the responsible
sell-down of our non-core financial holdings by
divesting our final holding in TSMC, as well as further
reducing our stake in LG Display. The economic
malaise affected the market value of our remaining
financial stakes, causing us to write down EUR
1.4
billion on the value of our current financial holdings.
The road ahead
We remain fully committed to our primary financial
objective of doubling EBITA per share, and will
continue to drive forward our plans in this respect.
However, the rapid and severe deterioration in the
business environment means we no longer expect
to be able to realize this goal in 2010.
We remain fully committed to our primary
financial objective – to double EBITA per share
For the mature markets in Western Europe and the
US – and most emerging markets – we foresee very
difficult conditions throughout 2009. Nonetheless,
I firmly believe that the overall strength of our business
portfolio, coupled with our strong balance sheet and
tight focus on cost and cash management, will enable
us to weather the current turmoil and make the most
of the economic upturn when it comes.
69%
Employee Engagement Index
Philips Annual Report 20088
18
We care about...
8
Message from
the President
6
Performance highlights
14
Who we are
42
Our group performance