Philips 2014 Annual Report Download - page 7

Message from the CEO 2
Annual Report 2014 7
The separation of our Lighting business into a lean,
agile, stand-alone company will ensure it is better
positioned to capture growth as the world leader in
energy-ecient, digital lighting solutions.
We believe that this active reshaping of the portfolio,
including the projected sale of the combined Lumileds
and Automotive Lighting components businesses, is the
best way to create value for our shareholders and to
ensure a successful future for the customers and
employees of both companies.
Performance in 2014 - a challenging year
As we had expected, 2014 was a dicult year. We
continued to improve operational performance in most
businesses, yet saw signicant headwinds (e.g. market
slowdown, exchange rate uctuations) and other items
(e.g. legal matters, restructuring, internal quality and
supply chain issues) denting our results, with EBITA
declining by 6.6 percentage points of sales.
Sales were 1% lower on a comparable basis, reecting
sustained softness in a number of markets, including
China and Russia, and the voluntary temporary
suspension of production at our Cleveland facility.
These factors – compounded by currency eects and
the delayed ramp-up of production and shipment from
our Cleveland facility – also impacted protability,
resulting in reported EBITA of 3.8% of sales.
Having said that, the overall gures mask some
encouraging performance and strategic shifts. At
Healthcare, a major eort was made to remediate the
situation in Cleveland and secure external certication
of the updated quality management system – setting
the stage for a better 2015 as the resumption of
shipments gathers momentum. Expanding its oering
to help consumers make healthier choices, Consumer
Lifestyle continued to perform very well, posting strong
growth and earnings. And, pursuing its four-pillar
strategy, Lighting recorded a 32% increase in LED-
based sales.
We also took decisive action to address
underperformance. At Healthcare in the US we rolled
out a new go-to-market model for enterprise-level
integrated account management. Also in North
America, we strengthened Professional Lighting
Solutions’ management team and rened a multi-
channel go-to-market model to unlock the potential we
see in that market. And in Europe, we acted to
strengthen Consumer Luminaires’ fundamentals and
cost structure, including an optimized portfolio and
supply chain.
By the end of 2014 we had completed 41% of our EUR
1.5 billion share buy-back program, and we continue
working to further improve the eciency of our balance
sheet.
Supported by Accelerate!
Our Accelerate! transformation program helped us
manage through this challenging year, driving
improvements across the organization, not least in
serving our customers better. Strong customer focus
was key to securing long-term partnerships with
Karolinska University Hospital and Stockholm County
Council in Sweden, Mayo Clinic in the US, and Reinier
de Graaf hospital in the Netherlands.
We are seeing quarter-to-quarter growth in the number
of such deals, which are all about clinical knowledge,
in-depth relationships, and integrated solutions rather
than discrete products. Customers are not asking for
specic items of equipment, but rather our advice and
help in devising, for example, a care pathway to ensure
a patient is accurately diagnosed as quickly as possible
and in the operating room within 90 minutes of having
a stroke. Faced with challenges like these, our
combination of customer focus, innovative strength
and solutions thinking is key to delivering a successful
outcome.
In this context, I am very pleased that the KLAS
organization presented Philips with the Best in KLAS
award for 2014 during a ceremony at the annual RSNA
event in Chicago. The Best in KLAS rankings are based
on feedback from customers.
In 2014 we continued to apply Lean methodology to
transform our customer value chains. This again
enabled us to speed up time-to-market for our
innovations – locally relevant value propositions, such
as our aordable VISIQ ultra-mobile ultrasound
system, our smart Air Purier in China, and our at
SlimStyle LED light bulb. Innovations like these make a
real dierence to people’s lives.
Accelerate! also helped us to deliver gross overhead
cost savings of EUR 284 million in the year, keeping us
on track to hit our 2016 cumulative target of EUR 1.8
billion.
Other key developments in 2014
In Interbrand’s annual ranking of the world’s top 100
brands, our brand value rose by 5%, passing the USD 10
billion mark for the rst time.
In Philips Research’s centenary year, we underscored
our commitment to meaningful innovation by investing
EUR 1,635 million in Research & Development in line
with prior years and achieving our target of EUR 2 billion
spend on Green Innovation a year ahead of schedule.
Turning investment into intellectual property, we led
1,680 patent applications. And with a view to capturing
opportunities to create a healthier, more sustainable
Africa, we set up an Innovation Hub for the continent in
Kenya.
We continued to deliver on our EcoVision commitments
in 2014, and our sustainability drive again received
widespread recognition – a #14 ranking in Interbrand’s