Business highlights

• Building on its innovation leadership, Philips introduced the all-new Vereos digital PET/CT system, with a twofold increase in resolution compared to analog (e.g. Philips Gemini TF16), resulting in high image quality and increased accuracy to improve diagnostic confidence, treatment planning and workflows. Philips also introduced the IQon system, the first spectral detector CT that uses color to enable a more definitive diagnosis in a single scan for faster imaging results. At RSNA, Philips received the prestigious "Best in KLAS" award for overall performance leader in imaging equipment.
• As a leading innovator in image-guided interventions and therapy, Philips has expanded its product portfolio with InfraredX's catheter-based imaging system and teamed up with RealView Imaging to demonstrate the feasibility of 3D holographic imaging in interventional cardiology.
• Philips has partnered with Mercy, one of the earliest providers of telehealth - the remote monitoring and management of patients and one of the fastest growing care delivery models - to expand its health care system's telehealth services and acute care beds fourfold by 2017.
• Philips has strengthened its respiratory drug delivery innovation capabilities and home care product portfolio through a technology license agreement with Aerogen and the acquisition of its home-care portable nebulizer product range.
• Continuing its commitment to improve access to care in Africa, Philips announced a new partnership with AMREF Flying Doctors and the support of a maternal and newborn health study in Uganda, which demonstrated how rural access to ultrasound screenings results in better quality of care.

Financial performance

• Currency-comparable equipment orders declined 1% year-on-year. Patient Care & Clinical Informatics recorded low-single-digit growth, while Imaging Systems posted a low-single-digit decline.
• Equipment order intake in growth geographies showed low-single-digit growth, mainly due to strong growth in China and Latin America, which was partially offset by a double-digit decline in Russia & Central Asia. North America showed low-single-digit growth, while Western Europe recorded a double-digit decline and other mature geographies achieved high-single-digit growth.
• Healthcare comparable sales showed 4% growth year-on-year. Customer Services achieved high-single-digit growth, while Home Healthcare Solutions posted mid-single-digit growth. Imaging Systems and Patient Care & Clinical Informatics recorded low-single-digit growth.
• Comparable sales in growth geographies showed double-digit growth year-on-year, with strong growth in China and Latin America, partly offset by a decline in Russia & Central Asia. Western Europe recorded low-single-digit growth, while other mature geographies achieved mid-single-digit growth and North America recorded a 1% decline.
• EBITA amounted to EUR 541 million, or 19.1% of sales, compared to EUR 411 million, or 14.1% of sales, in Q4 2012.
• Excluding restructuring and acquisition-related charges, EBITA amounted to EUR 538 million, or 19.0% of sales, compared to EUR 525 million, or 18.0% of sales, in Q4 2012. The increase was mainly due to overhead cost reductions.
• EBIT amounted to EUR 477 million, including a EUR 29 million impairment charge related to intangible assets at Imaging Systems.
• Inventories as a percentage of sales improved by 0.3 percentage points year-on-year.
• Net operating capital, excluding a negative currency translation effect of EUR 472 million, decreased by EUR 67 million to EUR 7.4 billion. This decrease was largely driven by lower fixed assets.
• Compared to Q4 2012, the number of employees decreased by 452. This decrease includes 705 employees from divestments, partially offset by an increase in the sales force in Asia Pacific.

Frans van Houten, CEO, mentioned: "The fourth quarter of 2013 was another good quarter for Philips, despite the challenging economic environment. In the quarter, Lighting and Consumer Lifestyle both delivered strong comparable sales growth of 8%. At Healthcare, comparable sales increased by 4%, while order intake declined 1% related to the weak markets in USA and Europe. The operational profitability of all sectors improved substantially, driven by good sales growth, gross margin expansion of 2 percentage points and the productivity gains, all coming from the Accelerate! program, and despite currency headwinds.

We achieved the mid-term financial targets we had set in 2011, thanks to the hard work of our employees. 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%, and did so in a lower GDP growth environment than originally anticipated. Our reported EBITA as a percentage of sales was 10.5%, within our target range of 10-12%, which we achieved despite currency headwinds and changed pension accounting. We also significantly improved our return on invested capital to 15.3%, above the target range of 12-14%.

We are making excellent progress on our Accelerate! journey. We continue to invest in growth opportunities and the Philips brand. Our overhead cost reduction program has resulted in EUR 1 billion of total gross savings to date. We reduced our inventory as a percentage of sales by 260 basis points from 2011 to 2013. Through our Design for Excellence (DfX) program we remain focused on improving gross margins. These ongoing initiatives, as well as the launch of our new brand campaign and our focus on innovation, continue to make Philips a better and more competitive company. We received a record of over 100 design awards in 2013.

We introduced the EPIQ Ultrasound system, the Vereos digital PET/CT system and the IQon Spectral CT system, which we expect will have a positive effect on future orders for our health care business. Building on our consumer portfolio of locally relevant innovations, we experienced strong growth in China as well as in Europe, driven by higher demand for our home appliances, among which the air purifier and air fryer. As the leading professional lighting solutions and services provider, Philips won a 10-year contract to deliver and service an integrated digital lighting system with 13,000 connected LED fixtures and adaptive energy management controls for parking garages in Washington, DC. We also won a major order to renovate most of Buenos Aires' 125,000 street lights with the CityTouch connected LED system.

Achieving the 2013 financial targets was an important milestone and we have now set our sights on reaching our 2016 targets. We are confident in our ability to further improve our performance by continuing the strong focus on our Accelerate! transformation program. Looking at 2014, we remain cautious because of ongoing macro-economic uncertainties, currency headwinds and softer order intake in Q4 2013. Therefore, we expect that 2014 will be a modest step towards our 2016 targets, also taking into account restructuring to drive the new productivity targets and investments in additional growth initiatives."

Related news articles:

• Philips Healthcare's Profile

About Royal Philips
Royal Philips (NYSE: PHG, AEX: PHIA) is a diversified health and well-being company, focused on improving people’s lives through meaningful innovation in the areas of Healthcare, Consumer Lifestyle and Lighting. Headquartered in the Netherlands, Philips posted 2012 sales of EUR 24.8 billion and employs approximately 114,000 employees with sales and services in more than 100 countries. The company is a leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as male shaving and grooming and oral healthcare.