07.22.14
$13.18 Billion ($32.1 B total)
KEY EXECUTIVES:
Frans van Houten, President & CEO
Ron Wirahadiraksa, Exec. VP & Chief Financial Officer
Jim Andrew, Exec. VP & Chief Strategy and Innovation Officer
Deborah DiSanzo, Exec. VP & CEO, Philips Healthcare
Ronald de Jong, Exec. VP & Chief Market Leader
Patrick Kung, Exec. VP & CEO, Philips Greater China
Eric Coutinho, Exec. VP, General Secretary & Chief Legal Officer
NO. OF EMPLOYEES: 37,008 (116,681 total)
GLOBAL HEADQUARTERS: Amsterdam, the Netherlands
Relevance is one of Frans van Houten’s favorite words. Not surprisingly, the term has played a central role in the chief executive’s transformation plans for Royal Philips, the Dutch electronics multinational that invented the audio cassette, VCR and CD medium. It also was a leader in DVD and Blue-Ray technology, and at one time, was a formidable player in televisions.
But by the middle of the last decade, Philips’ television business was losing its battle with cheaper competition from Asian firms like Samsung Electronics and LG Electronics. In 2007, the company’s TV division began operating at a loss that quickly ballooned to 436 million euros ($601.2 million) the following year.
Shortly after becoming CEO in April 2011, van Houten visited France and found a team demoralized by the limited shelf space being reserved for the company’s struggling consumer electronics business. “We did a store visit and the store managers said, ‘Well of course Philips gets less and less shelf space. Why can’t you do something that we want?’ he recalled in an interview with Reuters late last fall. “The word relevance was triggered by those discussions.”
Perhaps a more important word triggered by that discussion was “Accelerate!”—van Houten’s blueprint to increase his company’s relevancy in the marketplace. The multi-year program is designed to create a more “agile and entrepreneurial” organization with a greater presence in fast-growth emerging economies, a larger slice of the business-to-business market (only in relevant areas, of course), a leaner inventory and a fatter innovation pipeline.
Since launching Accelerate! in late 2011, van Houten has made his company more relevant by licensing off its mainstay lifestyle entertainment business (audio, video and media accessories) to focus on healthcare, energy-efficient lighting and consumer lifestyle products. He’s also earmarked more money for research and development to encourage innovation, and he’s cut layers of management to increase efficiency and reduce organizational complexity.
Accelerate! is more than a fat-trimming tool, however. It has become a way to expedite operational excellence and quickly deliver innovation to the market through a combination of local efforts and global platforms. In Africa for instance, where childbirth mortality hovers at 6 percent, Philips has created ultrasound screening centers in rural areas that are electronically linked to cities for diagnostic interpretation of images and doctors’ telephoned advice. Such integration of healthcare products with IT and telecommunications services is known as the “end-to-end” way of working, where global innovation and local entrepreneurial market teams work together to crack the healthcare code.
Accelerate! promoted a similar approach to innovation within the company, whereby regional offices have the flexibility to act like startups but also leverage the vast capabilities of a global player.
In accordance with its Accelerate! program, Philips executives built in a series of mid-term performance goals for 2013 that included a 4-6 percent comparable sales growth Compound Annual Growth Rate, assuming real gross domestic product growth of 3-4 percent annually; a 12-14 percent return on invested capital; and reported EBITA (earnings before interest, taxes and amortization) margins of 10-12 percent company-wide, 15-17 percent in Healthcare, and 8-10 percent in both Lighting and Consumer Lifestyle (excluding unrelated licenses).
Although economic headwinds still swirled strongly in the United States and Europe, the company achieved those goals last year, posting a 4.5 percent comparable sales growth rate, a 15.3 percent return on invested capital, and reported EBITA margins of 10.5 percent company-wide, and 15.8 percent in Healthcare. “Our Accelerate! initiatives helped us to achieve our mid-term 2013 targets,” van Houten told shareholders in the company’s 2013 annual report. “I am delighted with this result, as it underlines yet again that Philips is, above all, a case of self-help. 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 percent of sales.”
Many of those recurring revenue streams originated in the Healthcare division, where 2013 revenues remained flat at $13.18 billion (9.57 euros), but rose 1 percent on a comparable basis, according to data from the annual report. EBITA surged 28.3 percent, going from $1.6 billion (1.22 billion euros), or 12.3 percent of sales in 2012, to $2 billion (1.52 billion euros), or 15.8 percent of sales last year. The gain transcended the Healthcare division’s four business units and resulted from both higher sales and reduced expenses. (Editor’s note: Percentages reflect changes based on the local currency in which the financials were reported—in this case, the euro—and do not take into account annual foreign currency exchange fluctuations. Dollar amounts were converted using the exchange rate on the final day of the reporting period.).
Healthcare remained the top-grossing division in Philips last year, comprising more than one-third of the 123-year-old company’s $32.1 billion (23.3 billion euros) sales total. But profits stagnated, as the company grappled with a litany of setbacks, including a 2 percent decline in healthcare construction; currency volatility in Turkey, Argentina, Indonesia and other emerging markets; weak demand for healthcare equipment; and political unrest in the Middle East and Russia.
Lingering austerity measures in Europe and North America didn’t help matters either. Executives, in fact, claim both regions helped depreciate comparable sales by 1 percent. Revenues in other mature geographies, by contrast, experienced a high single-digit increase, while double-digit growth in China and Latin America counteracted sales declines in Russia and Central Asia, the annual report indicates.
Philips’ healthcare funk clearly was evident in the division’s four business units, too: The higher comparable sales (a miniscule increase at best) were driven by mid-single-digit growth in Customer Services, which encompasses consultancy, site planning and project management, clinical services, Ambient Experience, and equipment maintenance and repair. The low single-digit growth in Home Healthcare Solutions and Patient Care & Clinical Informatics, by contrast, partly offset a mid-single-digit dropoff in Imaging Systems (X-rays, computed tomography, magnetic resonance, nuclear medicine and ultrasound equipment, and women’s health).
As in past years, Imaging Systems generated the most revenue in 2013 (year ended Dec. 31), constituting 38 percent of the Healthcare division’s total proceeds. Customer Services sales were responsible for 26 percent of total revenue, while Patient Care & Clinical Informatics (perinatal care, therapeutic care, hospital respiratory systems, and ventilation) and Home Healthcare Solutions (sleep management and respiratory care, medical alert services, remote cardiac services, and remote patient management) brought up the rear with 22 percent and 14 percent of total sales, respectively.
Customer Services drivers likely included the breakthrough agreement Philips signed in late June 2013 with Georgia Regents Medical Center, a non-profit academic health center affiliated with the Georgia Regents Health System and Georgia Regents University.
Philips touted the collaboration last year as a “first-of-its-kind delivery model” in the United States. Under terms of the $300 million deal, Philips will provide consulting services, planning and maintenance services with pre-determined monthly operational costs over a 15-year term. It also will provide products ranging from advanced X-ray and computed tomography (CT) scanners to overhead lights and televisions in patient rooms at the Medical Center and its numerous clinics.
The deal is expected to save the Regents Health System at least $10 million annually over the agreement’s entire lifetime.
“By collaborating with Philips, we’re bringing all the stakeholders together at the same table to better assess and plan healthcare for tomorrow. It’s no longer a simple supply-and-demand business model,” David S. Hefner, the Georgia Regents Medical Center CEO, said when the agreement was announced. “Our goal is to foster an atmosphere of meaningful innovation that will have a significant and positive impact on the health of our patients.”
Home Healthcare Solutions positively impacted patients with the 2013 commercial release of a minimal contact nasal mask for sleep apnea patients. Philips executives described the Wisp device as a departure from traditional masks; the product is designed to fit more than 98 percent of sleep apnea patients. It has minimal headgear (no forehead pad and minimal parts) and features quick release tabs, headgear clips, reversible fabric (soft suedette and silky screen or clear silicone), a patented auto seal groove and three interchangeable cushion sizes within the same frame.
The Home Healthcare unit also unveiled several cardiovascular health monitoring products last year, including the Corindus CorPath 200 System (a robotic-assisted way of moving cardiac guidewires and balloon/stent catheters), the Philips IntelliSpace ECG and Philips ST80i Stress Testing System.
The IntelliSpace ECG is an advanced data management system that automates the processing, storage and distribution of electrocardiography, Holter and stress data acquired from various sources within hospitals. IntelliSpace provides the software tools to analyze, view, edit and compare ECG records as well as generate, manage and distribute reports in various formats to meet specific needs. The Philips ST80i Stress Testing System features a wireless patient experience, bi-directional connectivity and advanced decision support tools that enhance data review, patient care and workflow efficiency, according to the company.
Imaging Systems fortified its offerings with a slew of new products as well, the most notable of which was the EPIQ ultrasound system that substantially improves image quality by increasing penetration 76 percent and raising temporal resolution (the ability to maintain high resolution at high frame rates) 213 percent. The platform was among the dozen or so of the Healthcare division’s Green Product portfolio debuts last year—executives claim the EPIQ reduces both energy consumption and product weight by nearly 30 percent over older models.
Other product launches within the Imaging Systems unit in 2013 included the Vereos digital PET/CT system, which features a two-fold increase in resolution, thereby leading to higher image quality and better diagnostics, treatment planning and workflows; the IQon system, the first spectral detector CT that uses color to enable a more definitive diagnosis in a single scan; and the EchoNavigator, a live image-guidance tool that provides interventional cardiologists and cardiac surgeons an integrated view of live X-ray and 3-D ultrasound images.
“We have learned that ideally two live imaging technologies are needed to guide catheter-based repairs to the heart and a multidisciplinary team is needed to perform it,” said Professor Roberto Corti, M.D., an interventional cardiologist at University Hospital Zurich in Switzerland. “This adds to the complexity of such procedures. The development of a more sophisticated imaging technology such as EchoNavigator will definitely provide us with a better understanding of the complex structures of the heart and their repair.”
Additional supplements to the Imaging Systems portfolio were the AlluraClarity live image guidance system, the Pinnacle3 Proton treatment planning system, the MicroDose SI system, and the Spectral Breast Density Measurement Application for its MicroDose SI full-field digital mammography system.
The latter product is the first spectral breast density measurement tool that can differentiate between fat and glandular tissue to accurately measure volumetric breast density. The Spectral Breast Density Measurement Application works by independently measuring the glandularity and thickness in each pixel of an image to objectively calculate the total volume and volumetric percentage of glandular breast tissue. Once the calculations are completed, the examination is automatically assigned a MicroDose density score that correlates to the Breast Imaging-Reporting and Data System, a manual method for determining breast density. The measurement is displayed on the review workstation together in the DICOM tag of the acquired image and exported for display in a DICOM structured report.
The application of non-contrast spectral imaging uses photon counting technology, which sorts photons into low- or high-energy categories, eliminating the need for two exposures. This enables the use of spectral imaging within the routine mammogram.
“Philips believes that spectral imaging technology will be important in helping clinicians to assess breast density and provide personalized care to women,” said Lakshmi Gudapakkam, senior vice president and general manager of Diagnostic X-ray and Mammography Solutions at Philips Healthcare. “With the MicroDose SI, Philips contributes to breast cancer screening by delivering the same low dose, high image quality and ergonomics it already offers, while supplying clinicians with spectral-ready technology.”
KEY EXECUTIVES:
Frans van Houten, President & CEO
Ron Wirahadiraksa, Exec. VP & Chief Financial Officer
Jim Andrew, Exec. VP & Chief Strategy and Innovation Officer
Deborah DiSanzo, Exec. VP & CEO, Philips Healthcare
Ronald de Jong, Exec. VP & Chief Market Leader
Patrick Kung, Exec. VP & CEO, Philips Greater China
Eric Coutinho, Exec. VP, General Secretary & Chief Legal Officer
NO. OF EMPLOYEES: 37,008 (116,681 total)
GLOBAL HEADQUARTERS: Amsterdam, the Netherlands
Relevance is one of Frans van Houten’s favorite words. Not surprisingly, the term has played a central role in the chief executive’s transformation plans for Royal Philips, the Dutch electronics multinational that invented the audio cassette, VCR and CD medium. It also was a leader in DVD and Blue-Ray technology, and at one time, was a formidable player in televisions.
But by the middle of the last decade, Philips’ television business was losing its battle with cheaper competition from Asian firms like Samsung Electronics and LG Electronics. In 2007, the company’s TV division began operating at a loss that quickly ballooned to 436 million euros ($601.2 million) the following year.
Shortly after becoming CEO in April 2011, van Houten visited France and found a team demoralized by the limited shelf space being reserved for the company’s struggling consumer electronics business. “We did a store visit and the store managers said, ‘Well of course Philips gets less and less shelf space. Why can’t you do something that we want?’ he recalled in an interview with Reuters late last fall. “The word relevance was triggered by those discussions.”
Perhaps a more important word triggered by that discussion was “Accelerate!”—van Houten’s blueprint to increase his company’s relevancy in the marketplace. The multi-year program is designed to create a more “agile and entrepreneurial” organization with a greater presence in fast-growth emerging economies, a larger slice of the business-to-business market (only in relevant areas, of course), a leaner inventory and a fatter innovation pipeline.
Since launching Accelerate! in late 2011, van Houten has made his company more relevant by licensing off its mainstay lifestyle entertainment business (audio, video and media accessories) to focus on healthcare, energy-efficient lighting and consumer lifestyle products. He’s also earmarked more money for research and development to encourage innovation, and he’s cut layers of management to increase efficiency and reduce organizational complexity.
Accelerate! is more than a fat-trimming tool, however. It has become a way to expedite operational excellence and quickly deliver innovation to the market through a combination of local efforts and global platforms. In Africa for instance, where childbirth mortality hovers at 6 percent, Philips has created ultrasound screening centers in rural areas that are electronically linked to cities for diagnostic interpretation of images and doctors’ telephoned advice. Such integration of healthcare products with IT and telecommunications services is known as the “end-to-end” way of working, where global innovation and local entrepreneurial market teams work together to crack the healthcare code.
Accelerate! promoted a similar approach to innovation within the company, whereby regional offices have the flexibility to act like startups but also leverage the vast capabilities of a global player.
In accordance with its Accelerate! program, Philips executives built in a series of mid-term performance goals for 2013 that included a 4-6 percent comparable sales growth Compound Annual Growth Rate, assuming real gross domestic product growth of 3-4 percent annually; a 12-14 percent return on invested capital; and reported EBITA (earnings before interest, taxes and amortization) margins of 10-12 percent company-wide, 15-17 percent in Healthcare, and 8-10 percent in both Lighting and Consumer Lifestyle (excluding unrelated licenses).
Although economic headwinds still swirled strongly in the United States and Europe, the company achieved those goals last year, posting a 4.5 percent comparable sales growth rate, a 15.3 percent return on invested capital, and reported EBITA margins of 10.5 percent company-wide, and 15.8 percent in Healthcare. “Our Accelerate! initiatives helped us to achieve our mid-term 2013 targets,” van Houten told shareholders in the company’s 2013 annual report. “I am delighted with this result, as it underlines yet again that Philips is, above all, a case of self-help. 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 percent of sales.”
Many of those recurring revenue streams originated in the Healthcare division, where 2013 revenues remained flat at $13.18 billion (9.57 euros), but rose 1 percent on a comparable basis, according to data from the annual report. EBITA surged 28.3 percent, going from $1.6 billion (1.22 billion euros), or 12.3 percent of sales in 2012, to $2 billion (1.52 billion euros), or 15.8 percent of sales last year. The gain transcended the Healthcare division’s four business units and resulted from both higher sales and reduced expenses. (Editor’s note: Percentages reflect changes based on the local currency in which the financials were reported—in this case, the euro—and do not take into account annual foreign currency exchange fluctuations. Dollar amounts were converted using the exchange rate on the final day of the reporting period.).
Healthcare remained the top-grossing division in Philips last year, comprising more than one-third of the 123-year-old company’s $32.1 billion (23.3 billion euros) sales total. But profits stagnated, as the company grappled with a litany of setbacks, including a 2 percent decline in healthcare construction; currency volatility in Turkey, Argentina, Indonesia and other emerging markets; weak demand for healthcare equipment; and political unrest in the Middle East and Russia.
Lingering austerity measures in Europe and North America didn’t help matters either. Executives, in fact, claim both regions helped depreciate comparable sales by 1 percent. Revenues in other mature geographies, by contrast, experienced a high single-digit increase, while double-digit growth in China and Latin America counteracted sales declines in Russia and Central Asia, the annual report indicates.
Philips’ healthcare funk clearly was evident in the division’s four business units, too: The higher comparable sales (a miniscule increase at best) were driven by mid-single-digit growth in Customer Services, which encompasses consultancy, site planning and project management, clinical services, Ambient Experience, and equipment maintenance and repair. The low single-digit growth in Home Healthcare Solutions and Patient Care & Clinical Informatics, by contrast, partly offset a mid-single-digit dropoff in Imaging Systems (X-rays, computed tomography, magnetic resonance, nuclear medicine and ultrasound equipment, and women’s health).
As in past years, Imaging Systems generated the most revenue in 2013 (year ended Dec. 31), constituting 38 percent of the Healthcare division’s total proceeds. Customer Services sales were responsible for 26 percent of total revenue, while Patient Care & Clinical Informatics (perinatal care, therapeutic care, hospital respiratory systems, and ventilation) and Home Healthcare Solutions (sleep management and respiratory care, medical alert services, remote cardiac services, and remote patient management) brought up the rear with 22 percent and 14 percent of total sales, respectively.
Customer Services drivers likely included the breakthrough agreement Philips signed in late June 2013 with Georgia Regents Medical Center, a non-profit academic health center affiliated with the Georgia Regents Health System and Georgia Regents University.
Philips touted the collaboration last year as a “first-of-its-kind delivery model” in the United States. Under terms of the $300 million deal, Philips will provide consulting services, planning and maintenance services with pre-determined monthly operational costs over a 15-year term. It also will provide products ranging from advanced X-ray and computed tomography (CT) scanners to overhead lights and televisions in patient rooms at the Medical Center and its numerous clinics.
The deal is expected to save the Regents Health System at least $10 million annually over the agreement’s entire lifetime.
“By collaborating with Philips, we’re bringing all the stakeholders together at the same table to better assess and plan healthcare for tomorrow. It’s no longer a simple supply-and-demand business model,” David S. Hefner, the Georgia Regents Medical Center CEO, said when the agreement was announced. “Our goal is to foster an atmosphere of meaningful innovation that will have a significant and positive impact on the health of our patients.”
Home Healthcare Solutions positively impacted patients with the 2013 commercial release of a minimal contact nasal mask for sleep apnea patients. Philips executives described the Wisp device as a departure from traditional masks; the product is designed to fit more than 98 percent of sleep apnea patients. It has minimal headgear (no forehead pad and minimal parts) and features quick release tabs, headgear clips, reversible fabric (soft suedette and silky screen or clear silicone), a patented auto seal groove and three interchangeable cushion sizes within the same frame.
The Home Healthcare unit also unveiled several cardiovascular health monitoring products last year, including the Corindus CorPath 200 System (a robotic-assisted way of moving cardiac guidewires and balloon/stent catheters), the Philips IntelliSpace ECG and Philips ST80i Stress Testing System.
The IntelliSpace ECG is an advanced data management system that automates the processing, storage and distribution of electrocardiography, Holter and stress data acquired from various sources within hospitals. IntelliSpace provides the software tools to analyze, view, edit and compare ECG records as well as generate, manage and distribute reports in various formats to meet specific needs. The Philips ST80i Stress Testing System features a wireless patient experience, bi-directional connectivity and advanced decision support tools that enhance data review, patient care and workflow efficiency, according to the company.
Imaging Systems fortified its offerings with a slew of new products as well, the most notable of which was the EPIQ ultrasound system that substantially improves image quality by increasing penetration 76 percent and raising temporal resolution (the ability to maintain high resolution at high frame rates) 213 percent. The platform was among the dozen or so of the Healthcare division’s Green Product portfolio debuts last year—executives claim the EPIQ reduces both energy consumption and product weight by nearly 30 percent over older models.
Other product launches within the Imaging Systems unit in 2013 included the Vereos digital PET/CT system, which features a two-fold increase in resolution, thereby leading to higher image quality and better diagnostics, treatment planning and workflows; the IQon system, the first spectral detector CT that uses color to enable a more definitive diagnosis in a single scan; and the EchoNavigator, a live image-guidance tool that provides interventional cardiologists and cardiac surgeons an integrated view of live X-ray and 3-D ultrasound images.
“We have learned that ideally two live imaging technologies are needed to guide catheter-based repairs to the heart and a multidisciplinary team is needed to perform it,” said Professor Roberto Corti, M.D., an interventional cardiologist at University Hospital Zurich in Switzerland. “This adds to the complexity of such procedures. The development of a more sophisticated imaging technology such as EchoNavigator will definitely provide us with a better understanding of the complex structures of the heart and their repair.”
Additional supplements to the Imaging Systems portfolio were the AlluraClarity live image guidance system, the Pinnacle3 Proton treatment planning system, the MicroDose SI system, and the Spectral Breast Density Measurement Application for its MicroDose SI full-field digital mammography system.
The latter product is the first spectral breast density measurement tool that can differentiate between fat and glandular tissue to accurately measure volumetric breast density. The Spectral Breast Density Measurement Application works by independently measuring the glandularity and thickness in each pixel of an image to objectively calculate the total volume and volumetric percentage of glandular breast tissue. Once the calculations are completed, the examination is automatically assigned a MicroDose density score that correlates to the Breast Imaging-Reporting and Data System, a manual method for determining breast density. The measurement is displayed on the review workstation together in the DICOM tag of the acquired image and exported for display in a DICOM structured report.
The application of non-contrast spectral imaging uses photon counting technology, which sorts photons into low- or high-energy categories, eliminating the need for two exposures. This enables the use of spectral imaging within the routine mammogram.
“Philips believes that spectral imaging technology will be important in helping clinicians to assess breast density and provide personalized care to women,” said Lakshmi Gudapakkam, senior vice president and general manager of Diagnostic X-ray and Mammography Solutions at Philips Healthcare. “With the MicroDose SI, Philips contributes to breast cancer screening by delivering the same low dose, high image quality and ergonomics it already offers, while supplying clinicians with spectral-ready technology.”