Philips 2015 Annual Report Download - page 7

Message from the CEO 2
Annual Report 2015 7
In the eld of lighting, the industry is undergoing a
radical transformation. Population growth and
urbanization are increasing demand for light,
specically energy-ecient light. At the same time, the
rapid rise of LED and the mass adoption of digital
technology are driving a shift towards connected
lighting. With connected lighting, the lighting xtures
not only provide high-quality illumination, but are also
tted with sensors and connected to the building’s IT
network infrastructure, forming an ‘information
pathway’. This is opening up new applications where
we can deliver extraordinary value beyond illumination,
also via new service-based business models.
As a more agile, stand-alone company with direct
access to capital markets, we believe that our Lighting
business will be better able to strengthen its position as
the world leader in lighting solutions, boost scale and
capture growth.
2015 a year of solid progress
Amidst all this transformation, it was vital that we
improved our performance in 2015, giving our
customers the product and service innovation they
expect.
Overall, 2015 was a solid year for Philips, in which we
recorded consistent performance improvements in the
face of challenging economic conditions. Sales were up
2% on a comparable basis, driven by 4.5% growth in our
HealthTech portfolio. Protability also increased thanks
to the improved operational performance, overhead
cost savings, a reduction in cost of goods sold and
process optimization, partly oset by the signicant
impact of currency headwinds, higher investments in
R&D, settlement costs for pension de-risking, and
ongoing investments to improve our quality
management systems.
We reinvigorated our Healthcare business in North
America and gained momentum in winning large-scale
multi-year healthcare enterprise deals, e.g. with
Westchester Medical Center (USA) and Mackenzie
Health (Canada). And at our Imaging Systems facility in
Cleveland we saw a gradual ramp-up of production in
the course of the year. In February 2015 we completed
the acquisition of Volcano, improving our position in the
growing image-guided therapy market and
strengthening our ability to deliver the benets of
minimally invasive therapies, such as faster recovery
and shorter hospital stays. Post-merger integration is
making good progress.
We also continued to deliver impressive growth and
strong earnings across the majority of our Consumer
Lifestyle portfolio. Our Health & Wellness and Personal
Care businesses performed very well, delivering
another year of high growth and margin expansion.
Expanding our oering to help consumers make
healthier choices, we launched the rst in a series of
personal health apps at the IFA trade fair in Berlin. Built
on our Philips HealthSuite digital platform, these
personal health programs represent a new era in
connected care, as healthcare continues to move
outside the hospital and into our homes and everyday
lives.
Lighting had another year of excellent operational
improvements, recording double-digit growth and
margin expansion in LED, the key segment in the
industry, while continuing to actively manage the
decline of the conventional lighting market. Further
improvement in protability was mainly driven by cost
productivity and procurement savings.
The power of our connected lighting propositions,
based on IoT (Internet of Things) technology, was
underscored by the opening of the world’s most
sustainable oce building, The Edge in Amsterdam,
which features Philips’ smart connected lighting
solution, with Power over Ethernet. In the US, Los
Angeles remotely manages more than 100,000 street
lights with our CityTouch lighting management system
to create a more livable and safe city. And in the home,
our Hue connected lighting platform continues to be a
resounding success. Towards the end of the year, we
teamed up with Cisco and SAP to address the
opportunities in the oce and street lighting markets
respectively.
The termination of the planned sale of Lumileds to a
consortium led by GO Scale Capital was of course a
disappointing outcome, but we are actively engaging
with other parties that have expressed an interest in the
Lumileds business.
Accelerate! driving performance improvement
In 2015, our multi-year Accelerate! program again
helped us to step up growth and increase margins,
despite deteriorating macro-economic conditions in a
number of markets. Through Accelerate! and the
implementation of the Philips Business System (PBS)
we continue to drive improvements across the
organization. The PBS is helping us to further tighten
our focus on quality and excellence and enhance
productivity through continuous improvement
methodologies, while embedding new capabilities and
making us more agile, entrepreneurial and customer-
centric, with a culture of higher performance. This is
evidenced by the many large-scale multi-year hospital
deals we won in 2015 and our improving growth and
margins despite the dicult economic times.
The PBS is also helping to reduce time-to-market for
our innovations through Lean transformations of our
customer value chains. And it is supporting our drive to
become a digital company, both in how we work and in
what we oer to the market, e.g. our Philips HealthSuite
digital platform and connected LED lighting. Last but
not least, it is driving overhead cost and productivity
savings, osetting headwinds and enabling us to
improve our operating results over the year,
notwithstanding an increase in our Research &
Development expenses to 7.9% of sales.