$13.19 Billion ($32.8B)
Frans van Houten, President & CEO
Ron Wirahadiraksa, Exec. VP & Chief Financial Officer
Jim Andrew, Exec. VP & Chief Strategy and Innovation Officer
Deborah DiSanzo, CEO, Philips Healthcare
Patrick Kung, Exec. VP & CEO, Philips Greater China
No. of Employees: 37,460 (118,087 total)
Global Headquarters: Amsterdam, the Netherlands
Very few companies on the MPO Top 30 list can boast the kind of longevity (founded in 1891) of Royal Philips Electronics. It’s a select group; Siemens (1847), Johnson & Johnson (1886), Abbott (1888), and GE (1892), to name a few, have been around more than 100 years. But much like GE and Siemens, Philips is an extremely diverse conglomerate, making everything from light bulbs to advanced healthcare imaging equipment. Innovation, according to company leadership, has been at the heart of what’s fueled the firm’s more than 120 years of success.
And to compete in an increasingly cost-sensitive and diverse global healthcare market, Philips is going to have to bring all of the lessons it’s learned about innovation to the table—plus a little inevitable restructuring and streamlining.
“Healthcare systems throughout the world are rapidly changing to meet the needs of a changing society. Philips Healthcare is prepared to match the pace of change with innovative solutions that connect and empower patients and their caregivers in new and profound ways,” Philips Healthcare’s CEO Deborah DiSanzo wrote to shareholders in 2013. “Through the Accelerate program, Philips Healthcare will speed up innovation, raise customer service and improve value creation.”
As the deployment of the Accelerate program (which started in 2011) deepens, the company has identified additional opportunities, among others in the Healthcare and Lighting divisions, to further decrease inefficiency and complexity. The goal of the program, according to the firm’s leadership, is to make Philips “more nimble and agile.” The additional savings opportunities expected are approximately $1.4 billion (at today’s exchange rates) by 2014, and the cost-cutting is expected to impact about 2,200 additional positions globally.
“We continue to focus on improving the performance of our company, and we are making good progress. The identified additional overhead cost reduction measures will help us mitigate the effects of macro-economic headwinds and changes in pension cost accounting, while making us a more agile innovation company serving our customers effectively across the world,” said Philips CEO Frans van Houten during a call with analysts in late 2012. “The additional savings will lead to job losses, which is regrettable. At the same time, we continue to invest in innovation and the customer value chain to speed up the introduction of meaningful innovations to our customers in local markets, making Philips more competitive.”
In 2012, according to van Houten, the company continued to implement programs to improve time to market for new innovations, make products and services more locally relevant in markets around the world, redirect investments and resources to businesses and geographies with the best value-creation opportunities, and reduce cost and complexity across the organization.
One thing the company hasn’t skimped on has been research and development—particularly in healthcare. Philips has increased spending on R&D in high-growth medical sectors such as imaging systems by more than 60 percent since 2009. Development of such technology helped drive the group’s overall spending on medical research to approximately a billion dollars in 2012, nearly twice as much as it spent on research for lighting—even though it is one of the world’s largest lighting companies.
Overall, the firm’s efforts seem to be working.
In fiscal 2012 (ended Dec. 31, 2012), sales amounted to $13.2 billion, 13 percent (in euros) higher than in 2011 on a nominal basis. Excluding a 7 percent favorable impact of currency effects, comparable sales were 6 percent higher. Solid mid-single-digit comparable sales growth was achieved by all of the healthcare unit’s businesses, according to the company. Geographically, comparable sales in mature geographies were higher than in 2011 across all sectors. The year-on-year sales increase was largely attributable to North America and other mature markets. Sales in Western Europe were flat compared with 2011. In growth geographies, Philips Healthcare reported 20 percent increases in sales, largely driven by strong, double-digit growth in China, Brazil, India and Russia.
Earnings before interest, taxes and amortization (or, more simply, EBITA) increased from roughly $1.48 billion, or 12.9 percent of sales, in 2011 to $1.75 billion, or 13.2 percent of sales, in 2012. EBITA improvements were realized at all businesses, largely as a result of higher sales and cost-saving programs. Restructuring and acquisition-related charges amounted to $177 million, compared with approximately $26 million in 2011. (Editor’s note: Though EBITA is not a financial metric recognized in generally accepted accounting principles, it is widely used when assessing the performance of companies. It is intended to allow a comparison of profitability between different companies, by canceling the effects of interest payments from different forms of financing [by ignoring interest payments], political jurisdictions [by ignoring tax], collections of assets [by ignoring depreciation of assets], and different takeover histories [by ignoring amortization often stemming from goodwill]).
For the company as a whole, sales amounted to $32.8 billion, a 10 percent increase for the year. Excluding favorable currency effects and portfolio changes, comparable sales were 4 percent above 2011. Net income (including figures from discontinued operations) was about $292 million compared with a loss of approximately $1.6 billion in 2011.
Mid-year in 2012, Philips Electronics received a new chief. Deborah DiSanzo became CEO of in May. She succeeded Steve Rusckowski—CEO since 2006—who left the company to become president and CEO of Madison, N.J.-based Quest Diagnostics. He had been with the company since 2001 when Philips acquired Agilent’s Healthcare Solutions Group. DiSanzo also joined Philips in 2001 following the Agilent acquisition. She became general manager of Patient Monitoring in June 2006 and CEO of Healthcare Informatics and Patient Monitoring in June 2008. In April 2010, she was named CEO of Patient Care and Clinical Informatics.
Also in May, Philips inked a deal with Natick, Mass.-based Boston Scientific for Philips to sell Boston Scientific imaging equipment in connection with its Allura Xper catheterization lab systems in territories throughout the world.
Boston Scientific’s iLab ultrasound imaging system serves as a platform for its imaging catheters. The iLab system allows physicians choose from a variety of imaging catheters for coronary, peripheral and intra-cardiac applications. The iLab System is compatible and can be integrated with all major X-ray systems including the Philips Allura Xper system. This agreement gives Philips the ability to offer customers an integrated imaging solution that is compatible with current and next-generation Boston Scientific imaging catheters. Boston Scientific’s imaging business includes a full line of intravascular ultrasound and intra-cardiac echocardiography imaging catheters, which enable physicians to assess diseased arteries and intra-cardiac structures to aid in appropriate diagnosis and treatment.
“This collaboration is a further step in Philips’ strategy to offer seamlessly integrated interventional solutions. Philips works with companies like Boston Scientific to continuously enhance the integrated functioning of our cath labs and further enhance the user experience,” said Bert van Meurs, senior vice president and general manager, Interventional X-Ray, for Philips Healthcare.
Philips Healthcare also sealed a distribution deal with Corindus Vascular Robotics for Corindus’ CorPath 200 System. The system was recently cleared by the U.S. Food and Drug Administration (FDA), and, according to Corindus, is the first robotic-assisted system for the minimally invasive treatment of obstructed coronary arteries in patients with coronary artery disease (a procedure that also is known as percutaneous coronary intervention). The financial details of the exclusive distribution agreement were not disclosed. Philips, which makes interventional imaging, owns a minority share in Corindus Vascular Robotics, a manufacturer of robotic-assisted systems for interventional cardiology procedures. The CorPath 200 System can be integrated with X-ray fluoroscopy systems, including Philips’ Allura X-ray equipment. The robotic-assisted system can be used with standard stents, catheters and guidewires. The distribution deal enables both companies to sell the system in the United States. This agreement was the next step in the alliance between Philips and Corindus, which was announced in 2011.
The fiscal year also brought an agreement to equip all KLM Royal Dutch Airlines and Air France passenger flights with Philips’ HeartStart automated external defibrillators (AEDs). Sudden cardiac arrest leaves the heart unable to beat regularly, and it is only by resetting the heart’s rhythm with an electric current, delivered by a defibrillator, that a normal heart rhythm can be restored.
Philips will serve as the preferred supplier of AEDs to KLM Royal Dutch Airlines and Air France, replacing the defibrillators previously on board. KLM also will install the Philips HeartStart FRx AED on its Transavia passenger flights. All flight crews will be fully trained on the new device. The HeartStart FRx AED has been tested and certified for airline use and does not interfere with airplane electronics. The device features clear audio instructions for both guided use and cardiopulmonary resuscitation coaching in addition to intuitive icon-driven operation for ease of use. Its unique infant/child mechanism, which is an easy-to-use key, turns the HeartStart FRx into a pediatric defibrillator, offering the potentially life-saving simplicity and versatility of being able to use the same set of pads on adults, children and infants. Philips says its AEDs are used by more than 91 airlines and 195 airports around the world. The first AED ever installed by a U.S. airline was a Philips device, the firm claims.
The company’s expectations for 2013 are as high as an in-flight AED, but the there may be some turbulence along the way. The group’s sales of imaging systems fell year on year in the first quarter of 2013, by a percentage the company said was in the “high single-digits.”
Van Houten said the slowdown was due to “temporary” reductions in hospital capital expenditures and the introduction of a 2.3 percent medical device tax in the United States. But the overarching causes of slow medical device spending growth are government austerity policies in Europe and U.S. healthcare reform. Many health economists say that much of the slowdown may be structural rather than temporary. For the past three years, U.S. healthcare spending has grown only as fast as overall gross domestic product (GDP), according to the Ann Arbor, Mich.-based Altarum Institute, a health industry think tank. The same was true of orders for durable medical equipment.
In Europe, health expenditures have actually fallen as a share of GDP since 2009.
Philips’ sales of imaging devices in Asia have grown solidly. But the best-performing categories in Asia have been lower-cost, lower-technology systems, which Philips builds at a new plant in Suzhou, China.
Despite it’s Dutch roots, Philips Healthcare is based in Andover, Mass.