Philips 2013 Annual Report Download - page 7

Message from the CEO
Annual Report 2013 7
We are also seeing the steady development of a growth
and performance culture characterized by strong
employee engagement, teamwork, the drive for
operational excellence and accountability for results.
This is making us more agile, entrepreneurial and
innovative.
Financial performance
The economic environment in 2013 was challenging.
Full-year sales declined by 1% in nominal terms, but
increased by 3% on a comparable basis. Closing the
year with strong 7% top-line growth in the fourth
quarter, we delivered a compound annual growth rate
for comparable sales over the period 2012-2013 of
4.5%, compared to our target of 4-6%. In regional terms,
our growth geographies delivered 11% comparable
sales growth in 2013 and now make up 36% of total
sales.
Profitability improved significantly on the back of
increased gross margins and productivity gains from
our Accelerate! program. This resulted in a reported
EBITA of 10.5%, within the target bandwidth of 10-12%.
And our return on invested capital was 15.3%, above the
targeted range of 12-14%.
Our Healthcare business increased operational
earnings despite a virtually flat top line. With the issues
surrounding health care reform in the US and budget
constraints in key markets, we are increasingly focusing
on becoming the technology solutions partner of
choice to major hospitals as a way to unlock new
growth. Reflecting the success of its innovative
propositions for personal health and well-being,
Consumer Lifestyle posted strong growth and good
earnings, while Lighting recorded higher sales, driven
by a 38% increase in LED-based sales, and improved
operational earnings.
In 2013 we also completed the execution of our EUR 2
billion share buy-back program, thereby improving the
efficiency of our balance sheet, and announced a new
EUR 1.5 billion program to be concluded over the next
2-3 years. By the end of 2013 we had completed 7% of
this new program.
Other 2013 highlights
In 2013 we rose to # 40 on Interbrand’s annual ranking
of the top-100 global brands, with our brand value
increasing by 8% to close to USD 10 billion. And in
November we unveiled our new brand positioning and
brand line – “innovation and you” – and our redesigned
shield, which enjoyed an enthusiastic reception from
customers, employees and other stakeholders.
In 2014 we celebrate 100 years of Philips Research, and
over the past year we underlined our commitment to
innovation by investing EUR 1.7 billion in research and
development. We filed over 1,500 patent applications
in 2013. Other innovation highlights included the
increasing adoption of our Digital Pathology solution
and the development of the 200 lm/W TLED prototype
to replace fluorescent tube lighting.
We also continued to deliver on our EcoVision
sustainability commitments in 2013, improving the lives
of 1.8 billion people around the globe and hitting our
Green Product sales target of 50% of total sales two
years ahead of schedule. In Buenos Aires we were
awarded the order to renovate most of the city’s
125,000 street lights with our CityTouch system, and in
Dubai we were selected to transform over 260
Municipality buildings with intelligent LED solutions –
both projects reducing energy consumption by some
50%. Our eorts to create a healthier and more
sustainable world received recognition in the form of a
rise to 23rd place in Interbrand’s ranking of the top 50
Best Global Green Brands, as well as a top rating from
the Carbon Disclosure Project.
Of course, no year is entirely free of disappointment,
and in 2013 we had to contend with the termination of
the deal with Funai for our Audio, Video, Multimedia
and Accessories business. We also faced compliance
issues relating to our General Business Principles, which
we are refining and strengthening.
Looking ahead – our Path to Value by 2016
Philips is a diversified technology company with a
portfolio of some 40 businesses across various
strategic domains. Over half of these businesses hold
global leadership positions. Our portfolio is
underpinned by strong assets: deep market insights;
world-class innovation capabilities – technology,
know-how and strong IP positions; our global footprint;
our talented, engaged people; and the Philips brand.
The significant changes we have made to our portfolio
in recent years have created a better growth platform
with higher profit potential. And with the transformation
of our business model architecture, we are increasingly
becoming a technology solutions partner, with
recurring revenue streams accounting for over 25% of
sales.
Meeting the needs of a changing world
In light of the mega-trends and challenges the world is
facing, we are confident in our chosen strategic
direction. With its focus on health and sustainability, our