Philips 2012 Annual Report Download - page 7

Message from the CEO
Annual Report 2012 7
a rigorous approach to portfolio management to ensure
that we invest in the best value-creating opportunities and
exit less attractive businesses.
2012 – a year of significant progress
With the addition of Deborah DiSanzo and Eric Rondolat
as CEO of Healthcare and Lighting respectively, we have
completed our Executive Committee – a diverse team
that is fully motivated to transform Philips into the leading
technology company in health and well-being.
Accelerate! is gaining good traction and delivering tangible
results. We are improving the time-to-market of new
innovations and creating value propositions with greater
local relevance in key markets around the world. We are
redirecting resources to areas where we have identified
opportunities to create value and win in the market.
We are also transforming our processes to create lean
end-to-end customer value chains. We are reducing our
working capital requirements, including a significant
reduction in inventory in 2012. Our cost reduction
program – aimed specifically at reducing overhead and
support costs – is delivering ahead of target, with
cumulative savings of EUR 471 million in 2012.
And we are creating a growth and performance culture
by taking decisions faster, fostering entrepreneurial
behavior, and taking a granular approach to business
planning and performance management, fully anchored by
our General Business Principles. Our reward system has
been aligned to reflect the focus on growth and improved
performance.
I am delighted that the organization is responding well to
Accelerate! – all of these actions are making Philips a more
customer-focused, agile, entrepreneurial innovator.
We posted 4% comparable sales growth in 2012, despite
ongoing economic challenges and market weakness,
especially in the United States and Europe. Our growth
geographies made a strong and increasing contribution
(35% of sales, up from 33% in 2011).
Our underlying operational profitability improved, driven
by sales growth and higher productivity of non-
manufacturing costs. Reported EBITA was significantly
impacted by various charges, as well as restructuring
costs. We substantially improved our return on invested
capital.
Healthcare did well in 2012, recording 6% comparable
sales growth, as well as – importantly – improved
profitability at its Imaging Systems business. The growth
businesses in our Consumer Lifestyle sector, i.e. Personal
Care, Health & Wellness and Domestic Appliances,
delivered solid growth, including a significant contribution
from 2011 acquisitions in growth geographies. Lighting
posted a further increase in LED-based sales and made
progress in addressing underperforming units, with
Lumileds and Consumer Luminaires returning to
profitability – excluding restructuring and acquisition-
related charges – in the fourth quarter. Innovation is a key
driver of future LED-based applications and solutions, and
we were proud to launch our personal wireless LED
lighting system Philips hue. Reinforcing our commitment
to innovation, we increased our investments in Research
& Development from EUR 1.6 billion (7.1% of sales) in
2011 to EUR 1.8 billion (7.3% of total sales) in 2012.
Reshaping our Consumer Lifestyle portfolio was an
important step in the transformation of Philips to become
the leading technology company in health and well-
being. Our Television joint venture with TPV became
operational in 2012. This was followed by the
announcement of a distribution agreement with Funai for
Lifestyle Entertainment in North America. In January 2013
we announced an agreement with Funai on the transfer
of our audio, video, multimedia and accessories
businesses. This agreement will leverage the strengths of
both companies to improve the position of Philips Audio/
Video Entertainment in the market, providing continuity
for our customers and brand license income for Philips.
As we strive to make the world healthier and more
sustainable through innovation, we again delivered on our
EcoVision commitments and helped improve the lives of
1.7 billion people in 2012. Our ongoing efforts in this area
were recognized when we were named ‘Supersector
leader’ in the Dow Jones Sustainability Index for the
second consecutive year. In the annual Interbrand ranking
of the top 100 global brands, we increased our brand value
by 5% to over USD 9 billion, the highest in the history of
our brand.
In 2012 we continued to execute our EUR 2 billion share
buy-back program, which will improve the efficiency of
our balance sheet, and by the end of the year we had
completed 73% of this program.
Reflecting our confidence in Philips’ future, we are
proposing to the upcoming General Meeting of
Shareholders to maintain this year’s dividend at EUR 0.75
per common share, in cash or stock.