Koninklijke Philips Electronics' CEO Hosts Capital Markets Day Healthcare Conference (Transcript)

Mar.19.13 | About: Koninklijke Philips (PHG)

Koninklijke Philips Electronics NV (NYSE:PHG)

March 19, 2013 8:10 am ET


Abhijit Bhattacharya - Executive Vice President of Investor Relations

François Adrianus van Houten - Chairman of the Board of Management, Chief Executive Officer, President and Chairman of The Executive Committee

Ron H. Wirahadiraksa - Chief Financial Officer, Executive Vice President, Member of Board of Management and Member of The Executive Committee

Deborah DiSanzo - Chief Executive Officer

Ingo Bank - Chief Financial Officer of Healthcare

Greg Sebasky

Steve Laczynski

Gene Saragnese

Michael Mancuso

Brent Shafer - Chief Executive Officer - Philips Home Healthcare Solutions of Murrysville

Danny Risberg

Bas Verhoef


Martin Wilkie - Deutsche Bank AG, Research Division

William Mackie - Berenberg Bank, Research Division

Simon Toennessen - Crédit Suisse AG, Research Division

Olivier Esnou - Exane BNP Paribas, Research Division

Fredric Stahl - UBS Investment Bank, Research Division

Philip Wilson - Redburn Partners LLP, Research Division

Martin Prozesky - Sanford C. Bernstein & Co., LLC., Research Division

Daniel Cunliffe - Nomura Securities Co. Ltd., Research Division

Fabian Smeets - ING Groep N.V., Research Division

Martin A. Sankey - Neuberger Berman Group LLC


Please welcome to the stage, Head of Investor Relations, Abhijit Bhattacharya.

Abhijit Bhattacharya

Good morning, ladies and gentlemen. Welcome here to the Philips Capital Markets Day. Welcome to all of you on the webcast. And of course, a special welcome to those of you who've braved the snowstorm here in Boston and made it here on time.

We have an interesting agenda lined up for today. We start with Frans van Houten, our CEO, giving you an update on how we've progressed over the last few months and year. That will be followed by Ron Wirahadiraksa, our CFO. Ron will talk about the progress made on the cost reduction initiatives, as well as certain productivity initiatives that have been undertaken. We will have enough breaks for our sessions for Q&A. So Frans and Ron will take questions after that. And then we will have a few breaks before we start with Healthcare.

Let me just quickly draw your attention to the Safe Harbor statement, and move on further.

For the rest of the day, Deborah and her team will talk to us about Healthcare and how we are positioned across the continuum of care and how the various businesses fit in and the solutions that we provide. We -- and Deborah will be followed by her -- by the Healthcare Chief Financial Officer, who is appropriately named Mr. Bank. So Ingo will talk about the financial performance of Healthcare. The 3 businesses: Imaging system, which is led by Gene Saragnese; Home Healthcare led by Brent Shafer; and PCCI, Patient Care and Clinical Informatics led by Mike Mancuso will then talk to you about their businesses.

We have an interesting solutions showcase that's in the room down, we will take you there, to show you a few examples of really the new innovations that are coming. Unfortunately, we won't be able to webcast that. But for those of you in the room, that will be an interesting session.

We also have, in the afternoon, 2 presentations by 2 markets. We always present markets. So one would be Japan, where Danny Risberg is here; and we also present on Europe, where Bas Verhoef is here. We have 1 presentation which is new, normally, we don't have. That's on transforming Healthcare and accelerating Healthcare. We have newly appointed Greg Sebasky, who you all know has been running consumers -- customer services for the last few years. He has taken on the transformation role in Healthcare, so he will give you a good insight on what is happening in the transformation process for Healthcare.

A few housekeeping points, of course, please switch off your mobile phones. In terms of the breaks, meals, et cetera, they are well-positioned just outside, so the only thing we have to go down is for the solution showcase. Most important thing for me, at least, is the questionnaire in the book, which asks for feedback. We really value that and we try to take the suggestions to improve. So please, before you leave, fill that up.

And without taking too much more time, let me welcome Frans van Houten, our CEO, to take you through to the company update. Thank you.

François Adrianus van Houten

Good morning, ladies and gentlemen. Good morning, here in the room. And to all of you in the webcast, I really appreciate you being here and attending our update. I have chosen this beautiful picture on my opening slide because I feel so passionate about what innovation can really do. Now the lamp is over 120 years old and everybody would have thought that that's it. But we have totally reinvented the lamp. This is a multicolor lamp that you can remote control from your iPhone, from your Android phone, from your PC. It's selling out very well. I get e-mails from customers who say that they have replaced every lightbulb in their home because now, the half home automation just by buying this lamp, the hue lamps from Philips. So it shows what innovation can do, it totally creates the -- recreates the value perception of what a product like a lamp actually is. And that is how Philips wants to compete. We want to compete by bringing meaningful innovation to improve people's lives. We'll talk more about that.

So the key takeaways of my introduction. Of course, you already know this from our update in January, where we presented the fourth quarter results. We are happy that we have made good progress in improving performance during 2012. With several quarters in a row of improvements, it becomes more of a habit. It is greatly reinforcing the conviction of the management and the people in Philips that we can deliver and that it tastes after more.

So that also underlines that the Accelerate! program is working. We are now about 20 months into the Accelerate! program, having launched it in the summer of 2011. And we see that it is delivering solid results. But I want to underline the point that the Accelerate! program is a 5-year program and it is not finished in 2013. Some of you had that impression, but actually we have just started. And there's a whole lot more to come of what Accelerate! can do to unlock the full potential of Philips.

And as we are making progress with Accelerate! and become a more excellent company in our ability to innovate and deliver results, we are turning these lessons into what we call a repeatable business system. Other companies have business systems, such us Danaher or Honeywell or many others, good companies that deliver value in a predictable way, where investments will bring a return as desired. And we think that having a Philips Business System will codify and make it structural on how we create value and deliver value.

In January, I already told you that we expect a slow start of the year. But we are well on track to achieve our 2013 targets of 10% to 12% reported EBITDA, 12% to 14% ROIC, and 4% to 6% comparable sales growth. So no change there. I'm just reiterating it.

So let's have a deeper look at what we achieved in 2012. First, at group level, we completed, as promised, the Television joint venture, April 1, 2012. And moreover, we have now announced that we will transfer the Lifestyle Entertainment business to Funai, a deal that we expect to close in the second half of 2013. And that effectively will then have taken our exposure to Consumer Electronics away, and I'll come back to that later on when I talk about the portfolio. We increased the cost reduction plans, and then we have overdelivered on those plans. And it goes to the point that there is a lot of overhead cost in Philips and we are diligently taking that out.

We saw operating profit in all of our businesses improve, that's great, but also the efficiency of working capital improved. And of course, the share buyback program is on track and we'll complete the share buyback program in the summer of this year. When we look at top line, we are happy to see that even in a challenging economy, we continue to do -- to find good growth, excluding this Lifestyle Entertainment business that will go to Funai, we saw a growth of 6% in 2012. We are very pleased with the growth geographies that now account for 35%, but we also saw low-single digit sales growth in North America, somewhat affected by the uncertainty, especially also in the Healthcare sector. And Europe was stable with, of course, a better result in North Europe and a less good result in the South of Europe. And the other mature geographies did surprisingly well, but that was also very pleasing, you will hear more about, for example, Japan, by Danny Risberg, our CEO of Philips Japan.

Let me take a quick look at the various businesses. Then, I'm very pleased to see that under Deborah DiSanzo's leadership, we saw good growth and earnings improvement across all businesses. Structurally, Imaging Systems improved the operating margins. And we can see and recognize the traction that Accelerate! has in Healthcare. But you will hear a whole lot more about this from the executive team of Healthcare today.

In Lifestyle, we are very pleased with the strong sales growth in the growth businesses of Personal Care, Health and Well-being and Domestic Appliances. Talking about Domestic Appliances, we have made a remarkable recovery there by leveraging our 4 regional product creation hubs in China, India, Europe and in Brazil. And by embracing what we call local relevance. So by really understanding what the consumer in France or in Russia or in China needs, we have been able to record double-digit growth in 2012 in this business and dramatically improve results. We think we're on the right path to beat our competitors in this space. It's a recipe that actually is a testimony to Accelerate!. And I'll talk more about that, also, in a moment.

And of course, we are dealing with the aftermath of the TV spinout, taking the cost out, the stranded cost out, we know how to do that, we will do the same also for the stranded cost related to the Lifestyle Entertainment business. So no worries there. And in Lighting, of course, very much on all of your minds, we are sequentially improving the profitability. We believe that the low point was early last year and now we have systematically started to improve it. So the profitability coming out of 2012 positions us well for our 2013 target. And that's a combination of improving the operating margins and the cost, productivity, as well as coming with more competitive products.

We are very pleased that LED lamps saw a much more better gross margin. And of course, the turnaround of Lumileds and Consumer Luminaires are also proof points that say, lighting is on the right path. And at the same time, I hasten to say that there's a lot more work to be done which is all under our own control and we know how to drive this. And the fact that we see both good market share and top line performance, as well as bottom line improvement, shows that this is not just a cost-cutting exercise but we are actually competing very well in this new market of solid-state lighting.

So I already talked about the fact that Accelerate! is behind a lot of these improvements. And there's 5 fundamental pillars to our program and it all starts with the customer. It starts by making sure that everything we do, that our people are in the market organizations or back in R&D, we all think about how can we seduce the customer to really buy Philips products and deliver superior value. And the word "local relevance" is something that we use a lot. Sometimes these iconic words in a company can really get people to rally behind what is important. And for Philips, local relevance was something that we had forgotten a little bit, we had become too global. And by becoming more relevant locally, we extract more value and we can beat the competition.

Similarly, in the same vein, we have put a lot of effort on reopening and expanding the Business-to-Government channel. Very rewarding. Here in the U.S., that's already working well, but in many other countries, we see that by directly talking to governments, we can boost our business, whether that's in Africa or in Turkey or in the Middle East, in many other countries, there are so many opportunities. So we have set up an organization to do that. We've also leveraged our Davos WEF presence to the maximum. Resourcing to win talks about applying our resources to the best value-creating opportunities. We have shifted money away from mature markets in Europe to actually capturing new growth in the growth geographies, in Asia, in the Middle East, in Africa and so on. We are, as a nice example, going west in China, I have an example about it in a moment that is driving whole new growth in China. So applying resources where they get the best return, taking it away in less rewarding opportunities is what we want to do with the resource to win. And that becomes a very conscious effort through our granular approach in the business market combinations that we have. You remember, the business market combinations, it's our granular approach to driving performance and allocating resources.

As we become better at execution, through the End2End program, we see that we actually only need about 4 lean End2End business models. Business models that help us deliver standard products, solutions, software products and services in a lean and effective manner. So we are codifying 4 standard delivery methodologies, End2End, from creating the value proposition, procuring, manufacturing, sales and service, all the way into the market. By taking an End2END approach, we can take a lot of waste out, we can speed up time-to-market of new innovations. We do it to better serve the customer. And so the benefits that you see from the End2End program are higher sales growth, better gross margins, lower new manufacturing cost, better profitability and better working capital turns.

We are only at the beginning of the End2End program. The sales coverage is still low. We are expanding that this year in a substantial manner. Also, Healthcare will talk about it. It's a program that still will deliver a lot more value to Philips in the years to come. In order to roll this out better, we are training hundreds and hundreds of people in typical methodologies such as Lean and Six Sigma, Value Stream Mapping, Design for Excellence, methodologies that are proven in many companies in the world. We are systematically applying them now in Philips and we expect a lot more benefit.

Of course, all of these change programs only work when people want it. And that brings me to the key intervention on culture. Driving a growth and performance culture in Philips will make the difference. Also here, over the last 18 months, we have made tremendous progress. And maybe, that goes best by bringing -- creating a picture for you, what recently happened in our global leadership summit in the Netherlands that we held a couple of weeks ago. That was the third summit over which I was presiding, I had the benefit of presiding over. And of course, there was a market difference between 2011, 2012, and now, 2013, where the 300 leaders, and another 500 that were following us through the webcast, are all really geared up to deliver on the Accelerate! roadmap over the next 5 years and to show the world what Philips is made of. So this performance culture is gaining traction. And of course, we have aligned objectives and reward policies to it.

And at the AGM in May, we are proposing to our shareholders a new long-term incentive program, an incentive program that is forward-looking, performance-vesting and geared on relative TSR and earnings per share progress. So a marked difference from our old program that was only looking backwards and where you only had to be there in order to get the full reward. So a lot of things happening on that front.

And then operating model. Here, that is the program that takes overhead cost out, and also makes Philips a simpler company with less complexity. The combination of all these programs are gradually building up to establish the Philips Business System. And more on that in a few moments.

I feel passionate about all the nice examples that we have presented all over the world in Philips as enthusiastic employees say, Frans or Ron or Deborah, you've got to see this, here is how we have solved the next problem. So 4 good examples that we are working on, but then there's many more that we are working on. One here, right here in North America, you all know that we acquired Genlyte. Genlyte is not performing well enough for us and we have a world team transforming our performance in professional lighting in North America. By consolidating multiple backend operations in one Lean manufacturing and supply base, we are transforming the sales force into an integrated one, facing to the customer, being able to do consultative selling and solution selling, we have changed our pricing approach. We see that this transformation will result in better sales traction going forward.

Another nice example is in China. Now you all know that the Chinese government is stimulating very much the urbanization of the West of China. But of course, what people earn there is not the same as in the East of China. Local relevance, even within one country, China, that means different things for different people in different territories. So again, we have said, how do we make sure that we are relevant in the West of China, with price points that people can afford, yet still commanding a premium. End2End approach in Consumer Lifestyle in the east -- in the West of China made us redesign our products, our go-to-market, and on the way we sell. And we are able to command the same profitability in the West of China at lower price points as in our most profitable products elsewhere in the world. And that, I think, is the power of a real in-depth End2End value chain reengineering, so that they can grow but with the right profitability.

India, great example. A lot of people don't have light. And we have said, how can we bring light and improve their lives in a good and profitable manner. So we have designed solar-driven streetlights that can be taken off the grid and in a business model that works in India. And that's a great picture there. And just imagine what it does to the local economy of those villages that now have the ability to have light.

And the final example, applying deep insights in what customers are concerned about, what they are worried about, what they would like to have, has given us an early mover advantage on what we call, low-dose. People are worried about what radiation does and diagnostic imaging, using X-Ray or using CT, as the consequence of those. Philips innovation has made it possible to have 73% less dose with the same picture quality. Now bringing such a product to Japan, where everybody is very conscious about radiation after the Fukushima incident, of course, you can imagine that this product is just flying. And the fact that we are the leader in low-dose is a real competitive advantage. It starts by understanding deeply what customers want.

I talked about growth and performance culture. There's much to be said about this topic. But at this stage, I would like just to tell you about the 4 foundational practices that we introduced in our culture in the future. Customer centricity, being very innovative, being inspiring to our customers and to our employees and operationally excellent. These -- those 4 foundational elements that we will drive in everything we do in a consistent manner, because the culture will only change when you're very consistent in your reward policies, in your performance reviews, in how we train people and how we talk about it. And this, you will hear more about, as Greg Sebasky, who is leading the Accelerate! transformation in Healthcare, will give you more life examples of what this means.

So let's take, then, a look at the value creation. During 2012 -- from 2011 to 2012, we have made significant progress by taking TV out, by taking cost out, by turning around loss-giving businesses and by driving growth. That has, on a comparable basis, helped us to go from a 5.3% EBITDA including TV, to 9.5% adjusted EBITA, if I exclude the restructuring charges. And that sets us well -- sets us up well for 2013. So if I click again, we get 2013 there. And you see that we have mapped out exactly how we will get into the range of the 10% to 12% reported EBITA for 2013. And strongly driven by further productivity improvements, lower overhead cost, to a degree, also driven by growth and further turnaround of what we call underperforming businesses. And this, of course, incorporates the headwinds that we have from the pension accounting, the IAS 19, and the EC fine and some further investments.

I spoke about portfolio management. And you have seen us deal decisively with those parts of the portfolio where we feel that, even though we work very hard, it doesn't generate a good return. So as a company that embraces innovation, we would like to spend our scarce resources on those categories where we can really make a difference and drive a great return. In that context, I think we can be proud of the portfolio transformation that Philips has gone through over the last several years. Where we are now positioned in Healthcare, energy-efficient lighting, and Consumer Lifestyle with categories that have their profit pool intact and where we can see good growth, driven by the macro trends in the world of an aging society with many chronic disease, in a society that needs to deal with climate and energy issues and people with a growing middle class in growth markets that want to have a good life. So we play into those drivers for growth and since these markets have growth and good profit opportunities, we feel that the portfolio that we have now have the right fundamentals for profitable growth.

In -- I should add 1 point to that. In conjunction with that, we have -- we are making the proposal to the Shareholder Meeting to change the name of Philips. We have said, given that we have now a different portfolio, no longer exposed to Consumer Electronics, which is a high-volume, low-margin business, we feel it is better to be known as Royal Philips, rather than Royal Philips Electronics. So I hope to get the support of all of you during the AGM on that proposal.

So let's have a look at the future. So I've already talked about how compelling these markets of Healthcare, Consumer Lifestyle and Lighting are. And we want to differentiate ourselves on the basis of innovation. Through deep understanding of what customers really need and want, unmet needs, such as the example on those, in radiation. By really focusing on what people need and making it locally relevant for them, we can drive superior value for our shareholders and customers. I'd like to give you a couple of great examples.

Starting with Healthcare. We think that in Healthcare, there is a revolution going on in the way people will be treated. This is maybe a little bit scary picture, but it depicts the inside of your body, and in this case, the liver. The blue piece is actually a tumor in the liver. The doctor can see that, thanks to our diagnostic imaging capabilities. But we are moving our diagnostic imaging into what we call image-guided interventional therapy. And it helps the doctors to treat the patient through minimally invasive therapy. Minimally invasive therapy. That means you don’t need to be cut open totally and be in the hospital for weeks or undergo very, very severe treatment. When you can do it through a catheter that goes through your arteries, doctors can reach all these remote areas in the body. Thanks to Philips image-guided interventional therapy products, both in terms of diagnostics, as well as software applications that help doctors navigate through the body.

In this case, it helps doctors insert the chemotherapy exactly into the tumor through a catheter, guided real-time by our products. That is fantastic. And the patient can go home the next day. Much better for the patient, lower cost for the Healthcare system. And of course, it's a very attractive application for us to be in because we are in the heart of delivering care to patients and we cannot easily be disintermediated by a competitor. This is the future of treatment. And you will see and hear more on how we apply minimally invasive treatment through crushing kidney stones, to do heart ablation, to treat cancer or do interventions in the brain.

Here's another great example. I've talked to you about the 4 regional hubs in China, in Europe, in Brazil, in India. And by understanding what consumers need, we found that soy milk in China is very important. But there's also an unmet need in Europe, where people don't have much time but like to have a cup of nice soup, freshly made from fresh ingredients. We have leveraged a global platform from Shanghai and introduced the soup maker in France. And it is a big hit. And now we were expanding that to many other markets in Europe. It's a nice example of leveraging global scale with local relevance.

And here is a third example where we bring light into Africa. Where there is no power grid, but by combining in a smart way, solar panels and batteries, we bring light into the -- into the lives of these children.

So I've talked to you about our mission. Delivering meaningful innovation to improve people's lives as a way to create superior value. We want to do that in a repeatable fashion. Repeatable, because then we can deliver faster and better and with a higher profitability. So we have identified what our core capabilities, assets and positions are. Our technology innovation, our global footprint, our engaged and talented people, deep-domain leadership in Healthcare, Lighting and Consumer Lifestyle, solid balance sheet. And of course, the phenomenal power of the Philips brand. I talked to you about Davos in the WEF, where Deborah, myself and a few others were attending. And we had many, many, many bilateral meetings with hospital leaders, with government leaders. And the door is always open because of the Philips brand, so we can leverage that. So by systematically covering, let's say, leveraging and strengthening these capabilities, we can become a better company.

And that, ladies and gentlemen, brings me to the Philips Business System. At the core are the mission-vision and guiding statement. I've just talked about that at a high level. Now, I would like to explain how we leverage the core elements of the Philips Business System as a repeatable way to create and deliver value. Of course, it starts by being much crisper about the strategy where we manage our portfolio with clearly defined strategies and allocate resources to the best value creating opportunities. Second, we leverage our core capabilities, assets and positions, as they create differential value. It also means that if we see opportunities that don't match our caps, we shouldn't go after it, because you only deliver with excellence when you actually leverage what you're good at. So choosing those product market combinations where these caps will have a better resonance gives us a much higher chance to deliver value. Thirdly, Philips' excellence will make a big difference. The Accelerate! program is all about operational excellence, it's all about delivering value faster and better in a Lean way, in a more predictable way with better service for our customers at lower cost and higher profitability. As we progress with End2End and the new performance culture and the Business Market Combinations, we are codifying this new way of working, so that we now don’t have to reinvent the wheel all the time. This codification of how we work in Philips will drive business excellence. We see that there is a lot of appetite of people to learn about all these new practices, and the Philips Executive Committee leaders like Ron, like Deborah, like myself, we are all personally hosting these sessions in order to take people on the journey to say, how do you deliver excellence, how do we become a LEAN End-to-End company.

And finally, we -- this will help us deliver on our Path-to-Value. The Path-to-Value that is determined for 2013 was the given targets. In September, Ron and I hope to update you on what's next, what's coming after 2013. I can already tell you that we have just begun on a journey that is at least 5 years. And so the Path-to-Value is our way to make sure that we deliver sustainable results in an incremental manner, so that we become a real value proposition, also for our shareholders. And this is depicted as a wheel, showing, of course, that the wheel will go round and round. So as we deliver value, we can drive more growth in new opportunities. So I just wanted to share with you that we are making good progress in having this business system as a repeatable way to deliver value.

We are progressing well on our targets for this year. 2 years into the program, you can see that we are taking many of the boxes, and that we also know exactly what we still have to work on during 2013. Accelerating Healthcare, further improving the Lighting profitability, closing the Lifestyle Entertainment transaction with Funai, delivering on the $900 million portion of our $1.1 billion cost-reduction program for this year. Ron will talk to you about a new program in procurement where we see many opportunities to drive down the Bill of Material of the products and services that we sell. That's a new source of value that we want to talk about. And of course, we are preparing what is next after 2013, a question that I know is on many of your minds, but that we have elected not to talk about today because we first want to deliver 2013 -- at least be well on the way to deliver 2013. And of course, we will continue to work on establishing our performance culture. I know and I say this often inside Philips, companies sometimes stop too early in their transformation efforts. That will not happen to us. We are convinced that we need to stay at this transformation for 5 years in order to make sure it truly, truly anchors and changes the way Philips will deliver value in a repeatable and predictable manner.

Let me wrap up. We've made good progress in 2012. And that tastes after more. It is highly motivational for our leadership, for our people and I'm sure it is also for you. Accelerate! is working. We know that this is the program that we can drive a lot harder and further. And I just want you to remember that this program will run at least till 2017. And as we are doing it, we are codifying all these learnings into a repeatable business system, which is the Philips Business System. I told you in January on the conference call and in the roadshow that we expect a slow start of the year in 2013, but we are confident about reaching our targets as stated for 2013.

With that, I'd like to ask Ron to follow and to talk to you more about the cost and productivity initiatives. And then both of us will be available for a Q&A together.

Ron H. Wirahadiraksa

Good morning, everyone here in the room and on the webcast. It's a pleasure for me to stand here and give you an update on the progress that we are making regarding our cost and productivity initiatives. What I'd like you to take away from my presentation is that, we are well on track to meet the $1.1 billion targeted overhead cost reduction by 2014. And then as you have seen from the bridge chart that Frans showed, this a very significant part of our financial targets. Also, that these cost reductions are sustainable. They are the results of our rigor and design, a determination to see it through and very high-level ownership. The Executive Committee in Philips owns and drives this with our great leadership team, of course. I'd also like you to take away how we are de-complexing the organization. And that de-complexing is part of what Frans said, the longer-term program to create much more value going forward. And we are looking at very significant purchase savings opportunities. Purchasing around a value chain within the product duration process.

Frans talked about the Philips Business System. The Philips Business System is the repeatable recipe on how we are going to drive, create and deliver value. I'd like to spend a minute on a key block of this Philips Business System. First of all, the Philips Business System is accepted and brought in and endorsed and deployed within the whole Philips group leadership team. It is our way of bringing the whole framework of value creation together. Our Path-to-Value, as Frans said, for the shorter term, is our 2013 financial targets. But within the company, we're driving along the lines of growth and return on invested capital that you know are the key performance metrics that we're driving in the group, a much broader framework of explaining, coaching, guiding and holding businesses accountable and markets for driving a sustainable path. So we are able to not just look at the 1 year P&L or 4 years out into the future, we are clearly articulating what that path looks like over time. And thereby, we're also very capable of driving performance management to see if we're on track and take corrective actions or do even better if we're already performing very well. So a key building block of the Philips Business System is our approach to the Path-to-Value.

Now I said, I would talk about our cost-reduction program. We delivered in 2012, EUR 471 million. It's very significant, certainly as a percentage of sales. And as Frans showed tonight, just already outlined a significant part of the improvement path in 2012, but also in 2013. So our original program was to deliver EUR 450 million within the year. So cumulative for 2013, EUR 900 million, and then the remainder to be done in 2014 to come to EUR 1.1 billion. Of course, this requires ongoing restructuring. We took quite significant restructuring last year in our overhead cost reduction program. And some of that restructuring we've paid out this year, of course. And we are progressing also on the investments that we're making to fundamentally overhaul the infrastructure of the company. So a solid rigor in the design, execution and tracking are all key ingredients for the success that we have seen over 2012. And are certainly looking forward to prolong in this year.

Frans mentioned I would talk about the business models. The business models are, for us, End2End delivery models around meaningful innovation, bringing that to markets and how we get paid in the process. And we're going to standardize that from 70-plus business models, it's quite scattered actually around the group, to 4 standard business models. And those 4 are the standard products model, the solutions model, the service model and the software model. So these will be standardized business models. And the standardized business models will see standardization in processes, data models and IT infrastructure. The business models implementation ownership is led by the sectoral CEOs. So Pieter Nota, the CEO of Consumer Lifestyle, leads the End2End implementation of the business model standard products throughout the group, not only in Consumer Lifestyle, but also in Lighting and in parts of Healthcare, if that applies. The same holds true for Eric Rondolat, who's tasked with the ownership and implementation of the solutions business model and the same holds, of course, for Deborah DiSanzo, the Healthcare CEO that you will see today on the software and services model. So with this, we have created broad ownership around a End2End model that will be deployed throughout each sector in 4 standardized ways. This will reduce a lot of the complexity, it will drive one cycle performance management reviews. And this will be an investment for the group going forward. This will unlock a lot of the value, because the complexity of the organization has taken a lot of oxygen, energy, out of entrepreneurship, that was what we told you in 2011. This is now the embodiment of how we're going to de-complex the organization and make it all much more workable. We will do this to provide also to our people a plug-and-play environment, a compelling infrastructure data at your fingertips, one source of truth, very streamlined. Of course, this requires also that our IT organization, process and infrastructure transforms. Even just last year at the Healthcare Capital Market Day, updated you on the IT roadmap. I'm here to reinforce that message and that we're actually on track in driving good transformation. The IT cost in 2011 stood at EUR 1 billion. We intend to bring that down to EUR 750 million by 2015. That's quite a drastic reduction. And that can only go hand-in-hand with the reduction in complexity with driving new outsourcing models, much more along output baselines, and deploying more off-the-shelf IT solutions. So End2End with us really means standardization. We call E2E, it doesn't mean anymore entitlement to exception. So IT will drive and underpin the whole standardization framework that we're putting in place. Of course, we need to make sure that the IT investments that we are doing are all End2End compliant. And this is hurting a little bit in the organization because we have so many legacy systems, but we need to take this step. And of course, where necessary, we will make the required investments. Last year's savings came to EUR 94 million. And we're looking for an overall 25% cost reduction, as stated, by 2015.

But IT is not the only functional transformation that we're running. We're also running a finance transformation that drives an increased focus and effectiveness. The finance organization in Philips has been quite scattered. We do report 3 days at the end of month our results. That is, by any standard, best-in-class. But the infrastructure, as I just outlined, has not been very compelling, so this has led to an enormous amount of scatteredness around the organization. Very hard-working people, but not working in a very conducive infrastructure. And we're going to make that better. The operating model for finance will be a global one centered around Centers of Expertise in accounting and internal control, financial planning analysis, finance operations. And at the group level, a limited number of specialists, like in treasury, audit and other group functions. The business partners who will draw on this infrastructure is the finance business partners in the organization. So they will have, at their fingertips, the right levels of analysis and insights and able to provide guidance and take good decisions, value creating along the Path-to-Value in the Philips Business System that will drive compelling value for the group.

The cumulative savings last year were EUR 31 million. And the target reduction in finance is also 25%, but by 2014. So a very significant transformation journey. A similar transformation holds true for HR, where we're also leveraging scale and expertise. So we increasingly use IT to drive more of a self-service infrastructure. A compelling infrastructure there to, to tap into, to understand what drives an HR agenda and have the information conducive to that and the business partnering from a number of experts that help drive decisions around the best HR agenda go forward. That means that we're also, there, have an HR business partnering model. And we have already implemented a large part of this. We saved EUR 31 million last year in HR. And here, we were looking at 15% cost reduction by 2014.

We're also simplifying the organizational layers in Healthcare and Lighting. We've taken out 2 layers, increasing span of control, driving more flexibility. And of course, quicker decision-making. Regional organizational structures have been radically reduced. And for the parts of headquarters of the group and the sectors that were in Netherlands, we have consolidated those. And that has led to a 40% reduction in cash cost. It's interesting for you to know that, that consolidation in the Philips Center in Amsterdam is in a WPI, workplace innovation environment, which means open-spaced environments, which means no more pigeon holes in an office where you almost cannot work. It means more connectivity, it means more engagement. So this is conducive, I think, with the culture that we want to create around meaningful innovation and connectedness and delivering and collaboration. And you'll be happy to know that Frans, myself and a number of the executive committee are in the same environment. I do have to say we spend a lot of time in our meeting rooms, because not everything is open-air feasible. But we have brought it as far as we could. And it's well appreciated by the organization. It's important for the leadership to lead this, also, by example.

On looking for significant savings opportunities in the Bill of Material. We have started a system, an infrastructure that we call DfX, Design for, and the X can mean cost, quality, manufacturing, anything. So this is an End2End approach around product creation. And that means we're working with integrated teams in the supply chain, R&D, marketing and finance, around resolving how to drive optimal cost in our products, in our Bill of Material. This will be done through a value engineering, more Lean redesign of the End2End value chain around purchasing, design and manufacturing in the process and leveraging our global spend. We found that we can still leverage much of the commodity spent in the company, also more in terms of expertise. We have hired, last year, Fredrick Spalcke, he comes from Huawei, who leads this effort as our Chief Purchasing Officer. And this is a company-wide and enterprise-wide program. So we're deploying that in the businesses. It's important to note that in 2013, we're starting this through what we call, DfX conventions. These are workshops where people get to see how it would work, what it would mean and what value it would lead to. And it's led to a very great excitement on the opportunities. We have found that in even mature products, we can still take out significant costs. And in new products, the opportunities are quite large in the pilot studies that we did. So in the coming years, we're looking to drive a cumulative amount of EUR 1 billion of additional savings out of the Bill of Material as a result of this. And that's what we mean when we say we're driving significant savings. So a great program. I'm joined with Fredrick at the hip in this. And within the executive committee, we're also owning and driving this program of improvement.

I'd like to give you, also, an update on some financial matters. As you know, we are divesting the Lifestyle Entertainment business, to Funai. The agreement has been signed. And we're looking to close this in the second half of 2013. We will account for this starting in Q1, the same as we did in TV, it will be accounted for in discontinued operations. The stranded cost of Consumer Lifestyle will be EUR 29 million. And the stranded cost of IG&S will be an estimated EUR 56 million. So those will stay within the running business and not be part of discontinued operations. The license income of approximately EUR 76 million will be moved from Consumer Lifestyle to IG&S as a result of this divestment and the way we account for it. So this is to give you an update on how we're going to account for the Lifestyle Entertainment divestment, the same way we did for the TV in discontinued operations. The share buyback program that we have started in 2011, we expect to complete that in July of this year. So we remain undeterred in executing on the share buyback program. The focus for the group remains, for now, on organic growth with bolt-on acquisitions if they're very value compelling. We have not been very active in the past 6 quarters. It doesn't mean we're not looking at bolt-on acquisitions. We do. But we have also reinforced the framework on decision-making around acquisitions, which is now at an Executive Committee level with a subgroup, where Frans and I, together, we're the head of strategy and M&A, take all decisions, finally, on-go, no-go on acquisitions. So the rigor around the decision-making has improved. We have also improved on our return requirements around acquisitions. We have a quite compelling 9-box grid on which we decide, is this something that meets the criteria hurdles or not. And we've also taken the turn of specifying more the profile of a bolt-on acquisition that we would be looking for. So more rigor around doing M&A. So we're looking for targets, if they're very compelling, we could decide on that, but it will be of a vote on major for now.

If you want figures of the company, we'll be restated for IAS 19R, that is the accounting for pension. So the pension cost increase, that's part of the headwinds that we have reported on, and as you also saw on the bridge. So for a good compare between 2012 and 2013's improvements, those numbers will be restated.

With this, I'll bring you back to the key takeaways. Well on track to deliver on the EUR 1.1 billion overhead cost-reduction savings, a lot of rigor in the design of the process, the ownership at top level and the determination to see this through. So we have, by far, not reached the end of that. Sustainable, going forward, we'll keep driving and looking for more opportunities. De-complexing the organization is a large part of the agenda. This will make Philips a more plug-and-play environment company, where the entrepreneurial spirit around meaningful innovation and driving value can get to a good enhancement. And that we are pursuing significant Bill of Material savings through our very rigorous DfX program.

This concludes my presentation. Let me now open the floor and -- for questions, and ask Frans to also come on stage. Thank you very much.

Question-and-Answer Session

Martin Wilkie - Deutsche Bank AG, Research Division

Martin Wilkie from Deutsche Bank. Just a quick question. First on, the Accelerate! plan. You alluded there's a lot more to come after 2013. In terms of the kind of things that are yet to happen, is it more of the same? Is there still a lot more overhead cost to come out? Or is it much more about transitioning more to growth investments and accelerating the top line? I appreciate you can give us more detail later in the year. But just to give us a sense, is it further cost savings or is it more about the growth?

François Adrianus van Houten

I think we will see benefits on all of the programs. So we will, of course, continue to drive productivity in the areas of overhead. First of all, we haven't finished the EUR 1.1 billion program that will run into 2014. The area in the customer value chain, so R&D, procurement, marketing and sales, the business functions, we want to drive that very hard for productivity. So leveraging the capabilities through the right opportunities, resource to win, making sure that we deliver products faster, you get more growth and a higher return. So in the end, it is also cost productivity. And Ron has given more details around how we can reduce the Bill of Material. That's a relatively young component in the Accelerate! family. And when you apply this whole Lean approach, you find opportunities all the time. So the existing program drives a lot more value beyond 2013. And we are also still finding new sources of benefit. And it's wrong to consider Accelerate! as a cost-reduction program. It's not. It's very much geared to driving, leveraging the capabilities that we have in a productive sense for higher growth and better margin realization.

William Mackie - Berenberg Bank, Research Division

Will Mackie from Berenberg Bank. Firstly, in the light of a more constrained capital allocation for M&A, could you discuss with regard to capital allocation how you might best utilize the balance sheet or the capital structure of the group, perhaps through buybacks or changes in dividend policy? And an adjunct to that would be to, perhaps, define what you see as a bolt-on acquisition. You said you tightened the definition. What do you see in terms of size or scope for deals?

François Adrianus van Houten

Okay. Ron, why don't you just...

Ron H. Wirahadiraksa

Okay. So on the balance sheet, our capital allocation policy starts with sustaining our single A rating. And as you know, we are a negative outlook since January last year for 2 rating agencies, Moody's and Standard & Poor's. We have to [indiscernible] because maintaining single A rating provides us the funding flexibility that we feel we need in our business, also the flexibility and good optimal cost. So that's a starting point. Then what is next? As I said, we're focused on organic growth and make investments in compelling business cases, capital expenditures, if you will. M&A is, as I outlined, not in a big way right now in the horizon. We're doing bolt-ons. Larger targets or the strategy around the Philips Group moving forward, as Frans said, we'll update you on that in September of this year. Then on share buybacks. We are not a serial share buyback company. We do share buybacks. So for us, in July, when we've completed the share buyback program, it's very natural to pause and to consider seeing the strategy upcoming and the capital allocation decision policy around that, what that will look like going forward. We are very committed to use our balance sheet to produce the best value. That's, I believe, what we have demonstrated over the past 2 years. So more to come on clarity around strategy and organic, inorganic in September. Yes?

Simon Toennessen - Crédit Suisse AG, Research Division

Simon Toennessen from Credit Suisse. 2 questions. The first one is on the restructuring costs. You've given us guidance for Q1 for the different sectors, EUR 10 million in Healthcare, for example. Is that a run way -- run rate per quarter that we can use for the next quarters to come, as well, to get to a figure for the full year? And then the second question is just on the buyback. Could you give us an update how far you're down the line just at a percentage?

Ron H. Wirahadiraksa

Yes. At the end of Q4, we were, I believe at 73%. 73% of the buyback. And the rest, the remainder, which is about EUR 500 million, we'll spread that evenly in the quarters. So let's say, EUR 250 million each in the coming quarters. On the restructuring. Last year was a year of heavy restructuring. It's emphasized particularly on Lighting, where if you do the average over the past 4 years, you're about 1.6%, 1.7% for restructuring. That's a good average for Lighting to look at. We also say that if the conventional infrastructure needs to be downsized faster due to LED adoption, we have to take additional restructuring. So last year, we took the restructuring on quite a rigorous conversion plan around LED. Last year for Lighting was higher, it was about 3.2%, but I would say that has been quite extraordinary, because we needed to speed up the program on the matching of footprint reduction. For the group, overall, we don't guide for a quarter's out. But if you want to focus in Consumer Lifestyle, there's not a lot of infrastructure to restructure. I talked about stranded cost there for -- I'm pertaining to the Life Entertainment divestments. And in Healthcare, we've done some restructuring in 2012 and took provisions. That pertains more to rightsizing of a number of, yes, higher cost area manufacturing operations. So we're not talking there about quite large downsizing, because the portfolio is growing with mid-single -- low- to mid-single-digits, so no reason there. We are more focused in Healthcare to increase our infrastructure of operations in the -- in the lower-cost areas.

Olivier Esnou - Exane BNP Paribas, Research Division

Olivier Esnou. 3 questions please. First, maybe on the Philips Business System, when do you think that will be up and running for the group? Secondly, you mentioned, and this is not new, that Q1 is a slow start. Just wanted to know, maybe, in terms of granularity, are you seeing some things that have surprised you regionally or by business, by being worse or better going into this slow Q1? And lastly, just an update, maybe, on the IG&S charge for the year, because there are some moving parts now out of consumer lighting. So are we still on a EUR 350 million target for the year for IG&S in terms of charge, despite the stranded cost and the movement of license income?

François Adrianus van Houten

Okay, Olivier, I will take the first and Ron can take -- will take the second, too. So there's no discrete moment when you switch on or switch off a business system. So we have started. It is totally outlined in terms of the principles that we want to drive the company on. We are already into the second iteration of the principles, as defined for the Philips Business System. We first launched it in late 2011, and then, we have honed it now recently into the next version that was, in detail, discussed with the leaders of Philips. But then, it's a matter of growing into it and starting to adjust the ways of working, to adjust the standard business models, the way we measure and reward people, how we cascade down targets, and that is a learning curve. Now when can you say it fully functions, right? Maybe we need to think about a kind of a traffic light or yard stick for you so that we can report on it. But I see us gradually become better at it. And so the outline is there, but now we need to practice and hone it and make it perfect. And so I think it will take several years before every -- every corner of the company is fully compliant to the business system, right? Many other companies that I've spoken to also have taken several years to perfect it.

Ron H. Wirahadiraksa

Yes, Frans, if you'll allow me to build on that. So the Philips Business System is launched, but it's not that -- we have not been working on it. So actually, it comes out of our Accelerate! program. There is -- there were 5 work streams in there. One of them is operating model and the Philips Business System addresses this. Since 2011, we've been architecting a lot on these business models, on our IT roadmaps, on the finance and HR transformation, how the BMC, the business market combination, the customer value chain, is going to work. But this brings it together. So now we have a coherent framework, and that's a great thing to have, a real asset in the organization that, let's say, our leaders and our employees can rally around and clearly understand, how do we create value in Philips. So a lot more to come, as Frans said, but this is not the launch of some -- start of something new. It has evolved because, we have brought it together. On your question on IG&S. We already guided for EUR 350 million, I just said that there's EUR 56 million of stranded cost going to IG&S, however, also the license income of EUR 76 million going to IG&S. So it will be on balance with that EUR 25 million or so, EUR 20 million better. So let's say, it's still within the vicinity.

François Adrianus van Houten

On your question, is there something new on the slow start of the year? Actually, there's not. So I mentioned slow start of the year in January and, well, it's panning out in that way. Now we might have hoped for different, but actually, I think we were prudent to flag it that the year would start slow. And notably, we see that in Healthcare. And the team will talk about it today. United States is certainly not an easy market due to all the uncertainties around sequestration and all the other measures that are applying to the Healthcare market. But Deborah and her team will talk about that. Lighting, somewhat also slow start, also, as expected. And then, in Consumer area, actually, some of the good momentum that we had in the growth businesses, we still see. But it doesn't change the way we talk about the slow start of the year. This is just still the way it is. We go first -- okay, it's difficult to orchestrate. Now we go first -- please do. The microphone was going the other way.

Fredric Stahl - UBS Investment Bank, Research Division

Frederic Stahl from UBS. I had a question on R&D spend, how we should think about that in the next few years, given the LED opportunities, the portfolio changes you're making in Consumer. You focused on localization. So there's a lot of moving parts here, so if you could provide us some color on...

François Adrianus van Houten

Yes, sure. I mean, first of all, you will have noted that we have protected R&D over the last 18 months when applying Accelerate!, because we said, R&D is -- and innovation is the lifeblood of the company. Yes, we have to make it more productive, we have to make sure that we use the resources in the most rewarding programs, back to portfolio management and so on, resource into them. We can make R&D more productive by the methodologies: Agile/Scrum, Design for Excellence and so on. This is all ways to drive productivity. But the amount of the money that we are investing in R&D has actually increased a little bit, all right? And as we changed the weight of the portfolio -- so Healthcare is now well over 40% of the portfolio, and Healthcare has a fairly high R&D ratio, that means that for the group, also, the R&D ratio is likely to shift with that mix change. By sector, I don't see the percentage going up, but I also don't see it immediately come down. As we become better and better in driving value and speeding up time-to-market, it should eventually result in a higher growth on the R&D euros that we invest, that's part of End2End.

Philip Wilson - Redburn Partners LLP, Research Division

It's Phil Wilson from Redburn. Two questions please. First picture of your 2013 margin target is improving selective businesses. We talked about Imaging Systems, Luminaires, Consumer Luminaires, Genlyte. Can you identify and other businesses where you see the biggest scope of change and what progress you're making here? And secondly, on the potential $1 billion Bill of Materials savings. Can you talk about how much in the way of charges have been taken already to achieve this and how much you expect to come?

François Adrianus van Houten

Well, in the Healthcare -- I'll let the Healthcare team talk about Healthcare. I think that's only fair since they're all here and they're much more capable than I am in that area. In Lighting, clearly, the Professional Lighting Solutions need to improve profitability, Consumer Luminaires needs to further improve. Lumileds can further improve. The 2 units that are doing, let's say, fairly well are Automotive and Light Sources & Electronics. But within Light Sources & Electronics, we are very keen to improve the profitability of LED lamps. So you see, everybody has to step up to the plate here and to improve performance. And I think that goes to the culture of continuous improvement and applying LEAN, where you always look for more opportunities and nobody is exempted. Now in Lifestyle. The Philips analysts among you who have been following us for many years, you know that the profitability of the growth businesses in Lifestyle are not yet at the level that they used to be, 7, 8 years ago, right? So even though we can, relatively speaking, be happy about where the trend lines are going, clearly, they need to step up and deliver solid double-digit EBITA numbers in most of those businesses, all right? But we will come back to that in September with a bit more color. So I see all Philips businesses having the opportunity to improve, both in growth and in profitability.

Ron H. Wirahadiraksa

On the DfX. So this is a program that we don't see as a restructuring program. So there will be some money that we have to allocate to drive programs, but we also expect to earn that back, so I would say that the net from the onset is not going to be a negative one. So the resource allocated will be earned back quite quickly, as I indicated with some of the pilot workshops that we've done. We'll do some learning, but it looks very promising right now.

François Adrianus van Houten

Okay. There were questions here at the front table.

Ron H. Wirahadiraksa

There was a gentleman there, Frans, on the left side. We'll come back to you.

Unknown Analyst

Okay. During the presentation, you mentioned TSR as an increasing component of long-term management incentive compensation. Could you go into how that program is being structured, how far down does it go? Do you structure it in a way that's segment-specific for the operating team members such as, let's say, Healthcare?

François Adrianus van Houten

Yes. So the program that we are laying out to the general assembly of shareholders in May is a new long-term incentive program, where it will be share-based and no longer share and options-based. And it is a 3-year forward performance-vesting program with about half based on relative TSR and half based on hitting an earnings per share target that is set, in advance, by our supervisory board. And the amounts differ by region, with the United States having a higher, typically, labor market practices, I should say. Labor practices determine the amount that is there for each executive. In terms of depths of the program. We typically reach all the executives, and then some people below that. So off the top of my head, I think about 1,000 people.

Ron H. Wirahadiraksa


François Adrianus van Houten

Yes, it's about 1,000 people.

Unknown Analyst

In terms of computing TSR, do you take the peak, the individual segments of the company such as Healthcare or consumer Lifestyle or Lighting compare it -- decompose how value is being created as these businesses grow and improve the profitability, and then, try to create a specific metric for the operating executives?

François Adrianus van Houten

No, no, no. No, we don't. We have thought about it with a synthetic index of a basket that compares to our product, that we have deemed that to be too complex and not yet mainstream as a ways to measure. But we have expanded our peer group. And the peer group will now exist of 21 companies with a good balance and representation of the various sectors that we have. And a weight in sectors that represents, more or less, our portfolio, both in terms of sectors and geographies. And I wouldn't go too far off the top of my head, list all 21 companies, but I'm sure that this will be available online for your study. So we think that this is a more industry-standard practice and that will enhance the performance orientation of the company. And of course, we are driving these metrics also inside the company, so in earnings per share, trajectory is likely to be part of the metrics that we will also, then, spend more time on when we come back to you in September.

Martin Prozesky - Sanford C. Bernstein & Co., LLC., Research Division

Martin Prozesky from Bernstein. I've got 3 questions, please. I want to get back on the DfX procurement program. I mean, that's -- the EUR 1 billion number that you've mentioned this morning for '14 to '16. I assume that's a gross number. I mean, most companies tend to structurally keep quite a small proportion of the gross number that they put out. So can you just give us a bit more color on what is in that number? Second question. Last year when Jeroen Tas spoke about the IT transformation, I think you said there was something like 40 or 50 ERP systems in the company that was obviously being reduced. And a lot of the process changes that you seem to be implementing, obviously, are contingent on having a very unified, simple, IT backbone. So just how far are you on that journey and how much of the, kind of, final delivery of the Accelerate! program -- kind of program, as a whole, not just the cost side, but all of the growth opportunity and efficiency improvement opportunity is contingent on that system being in place? When is that done? And then finally, on the business models that you've mentioned, the move to 4 business models. How should we think about the risk to revenue in that transition because there's a lot of change happening. And in a world where growth is slow, you've got a pretty aggressive growth target, 4% to 6%. How do you avoid revenue risk in terms of making such big changes all at the same time?

François Adrianus van Houten

Okay, that's a rich set of questions, Martin. I would agree with you that in a normal situation, procurement savings are not necessarily margin expanding. But this is a step-up first as past practice. I would like to believe that in a step-up, in a step change, where we come from a relatively modest annual procurement savings to a higher degree, that we should see a fair amount of this step-up to boost our profitability or enhance our competitiveness as a company. That's about the color I would like to give on it now. As Ron said, we're doing pilots, we are gaining confidence, the funnel is being built. So it's a typical -- it's a good point to come back on in September and give you more confidence about. Now the IT is a great topic. And you don't clean up legacy overnight. So Ron already mentioned that we have blueprinted the standard business models. We have run pilots that gives us confidence that this is doable. And it creates excitement in the organization that, "Hey, there's something in this, it's not standardization for standardization's sake," but actually, "Hey, if you do this, we will become better, faster." And so we purposefully started with these pilots in order to create excitement. And that is not IT related, really. And then on the IT side we have started, first, to deliver functionality that we didn't have before in Healthcare. Great need and requirement for customer relationship management and sales force productivity tools. Deborah has a priority to make the sales force more productive. They spend way too much time internally. But by providing the information at the fingertips of the sales force, we can be more responsive to customers and make this whole job more productive. So we are rolling out salesforce.com, as we speak. And since there was not a lot of legacy there, that's relatively easy. But again, it also makes people excited that letting go of the old is good. Now then, what Jeroen talked about last year, the SAP systems, the product Lifecycle management systems, how we support all the core processes. That is a lot of work and it needs to go hand-in-hand with business process reengineering. Some companies have done that 10 years ago, we are going to do that in the next several years. This is also why this roadmap needs to take, at least, another 4 years to 2017. Because you cannot do all of the businesses at the same time, that would be too high-risk and the capacity to change would overwhelm us. So we are, again, there taking a step-by-step approach in all sectors we take some businesses that go first and then, we tune the approach and we can gain scale and roll it out faster. In some areas, we can go fast. For example, we are rolling out a whole new Philips University. Because in a continuous improvement culture, you need to provide knowledge and training and share best practices across. So that's a priority. We are rolling out a new HR system for HR self-service that helps make HR more productive, as Ron talked about. I guess we can go on because the landscape and architecture is totally developed and then, these various programs each have their course of action. And then, the third question from Martin, can I lean on you, Ron?

Ron H. Wirahadiraksa

The third question was, will this disrupt the business? So actually, we're doing it already. But there are various types -- type levels of implementation. So as Frans spoke, we have -- last year, we had about 25% of the company under End2End. We want to bring it to 40% this year. Those are type levels 1, 2, 3. Type level 4 is the implementation where the IT and enterprise process architecture will underlie the change sustainably. If anything, it has provided more opportunities so far. So because we're bringing the End2End value chain together, people have worked scatteredly along, with good intentions, along a plug-and-play environment trying to make it work, coming now together, understanding innovation-to-market, market-to-order, order-to-cash. We have given examples of LatAm, Europe, of our Male Grooming in China. There are many more examples to be had. So as we roll this out as an opportunity, we actually have seen improvement of the results by collaboration and capitalizing on opportunities. The IT complexity, in the past, I think we have very quickly resorted to IT for solutions because under time pressure, seemingly, but actually in the absence of what I would call an enterprise-wise architecture. And that is the big difference that we see now. And I used a couple of times the word "rigor." This is the rigor we're applying. I got the question, does this mean you're going to micro manage everybody? Absolutely not. We are going to provide a plug-and-play environment where people can conducively micromanage themselves and that is the whole idea. So the IT complexity stems from that past. And as Frans said, we can't make it under an overnight. This is a long, hard and laborious work and it will stretch the End2End roadmaps, stretch it into 2017.

François Adrianus van Houten

I will give you one more point. It all depends, also, on the persons that lead these programs. And Deborah asked Greg Sebasky to lead that transformation in Healthcare. Greg has led our Customer Service organization in Healthcare for many years, and improved productivity, improved results, profitability in a very, very systematic and nice way. So Greg, you can talk to it later and I think you should come back on this question on how do you do this. But I'm very pleased that when our best business leaders take on the leadership of transformation that, that is really different. And that will get us through whatever hump and difficulty we have to overcome.

Daniel Cunliffe - Nomura Securities Co. Ltd., Research Division

It's Daniel Cunliffe from Nomura. Just 2 quick questions. First of all, given all of the cost savings starting in, I guess, 2011. If you had to index sort of the costs as a base, let's call it 100 in 2011, where would this be, you think, by 2013? And then, if you could give a sense of 2016? And then, I guess, secondly, just looking at the comments you made about the slow start to the year in Lighting and Healthcare. If you just look at Lighting, specifically, was this more referencing some slower expected recovery in non-res or was it LED or was it sort of the conventional side? If you can just give us a bit more color, that will be great.

François Adrianus van Houten

Are we indexing our cost base, Ron?

Ron H. Wirahadiraksa

We're not, actually. And if we do, we're not talking about it right now. But what I can say is, if you look at the significance of the gross savings that we have realized last year, the EUR 471 million as part of the recurring or adjusted to EBITDA, that's very significant. So it comes close to about 2% of sales. It's very, very impactful. We also have to realize that you don't see all of it back in the bottom line because we're growing, we're investing in resources, we have taken restructuring charges. But speaking of 2016, of course, we're looking forward to, with all the architecture that we're putting in place, not just simply driving cost out by giving it a rigor, we should be in a much better and lenient -- sorry, and Lean way regarding our cost structure. Frans, I was surprised you haven't used the word Lean the whole morning.

François Adrianus van Houten

I have used it many times. There's something wrong with your ears.

Ron H. Wirahadiraksa

So Lean...

François Adrianus van Houten

My friend here, you've heard me say Lean many times.

Ron H. Wirahadiraksa

So Lean is actually -- yes. Lean is what we're practicing and this is, in the company, it's going to be part of the Philips University. So I would say, the cost structure of Philips, going forward, in terms of flexibility, we're doing fixed and variable on an absolute basis, will improve significantly to the sales that we're doing. But we're not giving out an index right now.

François Adrianus van Houten

I mean, applying Lean is also a culture. And I said last night over dinner, that last week, I hosted 2 webcasts on Lean in the office just to reiterate to people all over the company that this is important, that this is worth spending time on. It is worth spending an hour to learn new skills and see how other people are doing it. And one webcast in the morning, one in the afternoon, twice about 250 people. This is how your oil stain, that's an inspiration on taking this on. Apart from more formal top-down programs, so you need to come at it from all sides. And as to the Lighting, now this is -- there's no need for specific color because it is not something where something stands out, it's just that the year starts slow. In the back.

Unknown Analyst

Thank you. 3 quick follow-ups. You discussed restructuring, first of all, we touched on Lighting. But could you give, perhaps, a holistic number for where you see 2013, first, is the EUR 530 million you've booked in 2012, as an overall charge across the organization? Secondly, the LEAN End2End transformation program that's underway, 20% last year, up to 40% this year. Are you able to quantify, for the financial community, at least, some of the numeric benefits that dropped through from that? Because obviously, there's another 60% to go beyond '13 that we'll be looking for in that journey. And lastly, going back to the DfX program on procurement. Could you just, for the sake of color, walk through your thinking of how you arrived at a EUR 1 billion potential saving out of the Bill of Materials or rather the cost structure?

François Adrianus van Houten

Do you want to take the first one?

Ron H. Wirahadiraksa

Yes, what was the first one?

François Adrianus van Houten

It was about the EUR 500 million restructuring...

Ron H. Wirahadiraksa

Oh, yes. Of course, as I said earlier, the 3.2% of Lightning, that will not necessarily apply, 1.6%. 1.7% is a better guideline. And for the rest, we have -- we don't foresee major restructurings in Consumer Lifestyle. There will always be some structuring going on, on a run-rate basis, that will not be very high. So that will be, probably, more like historical levels. We're quite transparent in publishing those numbers right away. And for Healthcare. At this moment, we don't have any large restructuring program other than what the money that we took as a provision last year, which is -- we're rightsizing parts of the company that are higher cost areas. So it's actually not going to be EUR 500 million but I think, with this indication, it might help you come to a good insight on restructuring.

François Adrianus van Houten

On the End2End. First of all, I would like to reiterate to you that we are talking about very sizable numbers. Sizable. But partly, it is driven by growth; partly, it's driven by lower cost of goods sold, gross margin expansion and more productive, non-manufacturing cost and working capital reduction. So we see benefits on many areas. We have consciously not yet externally communicated a big number since some of it will shore up and help us realize the 2013 targets. Clearly, there's a lot of benefit coming after 2013, because we have told you that the percentage of business touched is actually still quite low. Moreover, touching a business doesn't mean that you have the benefits instantly. Some of the benefits will only come after a year. So if we touch 40% of the business by the end of this year, it could well be that some of the benefit will only come in 2014 or '15. So we'll be happy to, let's say, provide more color on the, let's say, the journey after 2013. Because I think that is where the variability is, right? What is more to come. For this year, all the programs that we run are there to help us realize the 2013 targets. Therefore, I don’t need to really quantify it and call it out specifically. So I'd like to leave it at that, William (sic), and I hope that you're satisfied with that for now. But remember, it's a sizable benefit that we see.

Ron H. Wirahadiraksa

On the DfX, you said how are we going to get there. We've done a number...

Unknown Analyst

I said how you arrived at [indiscernible]?

Ron H. Wirahadiraksa

Yes, so how are going to get to the -- how we're going to get there, to the EUR 1 billion. We'll give you a more precise guidance on that in September, as we said. How do we come to the number? We looked at a number pilots across the sectors where the DfX conventions have met quite great enthusiasm, I have to say. We applied a target, that's how we arrived at the number, tentatively. And right now, we're starting to build the funnel in 2013 to deliver, at least in 2014 and beyond, on that target. So this is how we do it. It is centered around value engineering, so reducing, simplifying, designing, components out. We still have areas where purchasing engineers are coming at the end of the development cycle, which is not the way we would like to do it. And there's a lot of leverage we can apply in commodity buying. It's important to note that this is not just a purchasing or procurement initiative but, actually, an integrated End2End initiative around driving the Bill of Materials within the product creation process. And we expect good things from that.

François Adrianus van Houten

It also requires us to upgrade our procurement force that, typically, was mostly at work in the order-to-cash area. We are inserting procurement engineers in every category, in every business. So that the strategic buying can take place together at the beginning of the product creation cycle. This is essential because then, you design to cost at the beginning rather than trying to repair it later on. It's a very promising and exciting area that, maybe, when the Healthcare colleagues talk later on, you can still make some more Q&A on.

We would like to round off now, because I think there's an insatiable demand for further elucidation. We're not going to do that right now. There will be a break, right? For how long, Abhijit?

Abhijit Bhattacharya

We will be back at 10:00.

François Adrianus van Houten

We will be back at 10:00. So thank you, very much, for your intense questioning. Remember that this program is working, we're on the -- on the right path. And I will see you back here by 10:00. Thank you.

Ron H. Wirahadiraksa

Thank you.


Abhijit Bhattacharya

Please welcome to the stage, Chief Executive Officer, Philips Healthcare, Deborah DiSanzo.

Deborah DiSanzo

Hello, everybody. What a great brand, what a great brand to be a part of, improving the lives of billions.

I'm Deborah DiSanzo. I'm the CEO of Philips Healthcare. I've been the CEO since May 1 of last year, and since May 1, we've been extremely busy. We've increased the speed at which we operate. We have leisurely focused on Accelerate!, Accelerate! Healthcare and improving operational excellence. We've driven our focus on building a growth and performance culture, and we achieved profitable growth in 2012.

Some of you will remember that prior to being the CEO of Philips Healthcare, I was the CEO of Patient Care & Clinical Informatics. And I just want to take a moment to remind you that while CEO of that business, we grew market share every year. Our lean manufacturing lines and keen operational excellence drove improvement in margins year-over-year in Patient Care & Clinical Informatics to among the highest in the industry. And we integrated 15 acquisitions quite well in PCCI.

But what will we talk about today? We're going to talk about driving profitable growth and achieving what we said we were going to do in 2012. The Healthcare industry is dynamic, it's growing, it's profitable. It is an extraordinarily great business to be in. Today, for the first time in decades, the Healthcare systems all over the world are transforming. And that transformation makes opportunities for innovations and, in particular, Philips' innovations, very, very opportunistic.

With Accelerate!, we're driving customer centricity. We're driving operational excellence and we're driving a growth in performance culture. And as Frans said, albeit a slow start of the year, we will be on track to meet our 2013 targets.

This is the last slide that we presented last May at Capital Markets Day. This is what we said we would do for the remainder of 2012. And this is, in fact, what we did. So in Accelerate! profitable growth, we gained or maintained market share in over 60% of our business market combinations. We increased our growth in growth geographies, revenue share from 22% to 24%. We sustained our new rate of product introductions and introduced between 50 and 60 new product introductions in 2012. Of that 20 were value solutions. We grew our revenue by 6%, and we grew our adjusted EBITA by 24% year-over-year, and create value through innovation. Once again, we increased our share in Patient Monitoring, now worldwide share up to 47% and we increased also in PCCI our share in Enterprise Imaging Informatics,5 full points from 14% to 19%.

We made progress in image-guided interventions and therapies, as Frans talked about, and, in fact, had our first breast cancer patients go through high intensity focused ultrasound. We created a new business innovation unit focused on our unique strengths in taking innovation from hospital to home and connecting the continuum of care through informatics and consulting services from the hospital to the home, and we have phenomenal pilots going on at Banner Healthcare and First Health.

We hired a professional clinical consulting practice management -- practice manager and now have very large consulting deals going on in workflow, ambient experience, education along management and analytics. And we are driving operational excellence through Accelerate!.

Ron talked about End2End programs. Philips Healthcare started our End2End programs in July, and from July to December, 8% of our revenue was in End2End programs. Greg Sebasky will come up and talk about how we aim to triple that this year.

Ron also talked about the structural cost reductions that we made. In Healthcare, we took structural cost reductions very quickly. We increased our stance of control, the number of people that managers manage and we decreased 2 full layers in the organization, making the organization leaner, simpler, faster.

We doubled our resources in value engineering, which allowed us to get our value products out and will continue to allow us to get our value products out. And our industrial output doubled in growth geographies: Brazil, China and India.

If you compare this slide to the slide immediately preceding it in your book, you will see that, in fact, we did deliver on what we said we were going to do. And what did it give us? It gave us 120 basis points improvement in adjusted EBITA. Sales, increased sales gave us operating leverage. And then we got operational efficiencies and increasing our low cost country sourcing, which Ingo will come up and discuss in more detail. We had service parts cost reductions and service cost innovations that led to operational efficiencies in service.

We had physical distribution cost reductions. And we reduced our non-growth and non-innovations spend by just over 10%. While doing this, we did, however, still invest in innovation, we still did invest in commercial resources in growth geographies, and these gave us all in total 120 basis points improvement in EBITA.

So do what we say we're going to do, act faster and drive profitable growth. I mentioned that nowhere else in decades have we seen this amount of transformation in Healthcare systems all over the world. All over the world. What is it driven by? First of all, now we die of chronic diseases: cancer, heart disease, diabetes. In fact, the sharp rise in incidence of chronic diseases are totaling 36 million of the 57 million deaths in the world. And 80% of those are in growth regions because as citizens move out of rural areas into cities, they, too, become -- they, too, have the chronic diseases of heart disease, cancer and diabetes affect them. Means that more sick people are going into the system. More sick people are going into the system where there are not necessarily hospitals yet built or clinicians yet available to care for them. People are getting sicker and people are getting older. The World Health Organization estimates by 2050, there will be 2 billion people over the age of 60 in the world. We're getting sicker. We're getting older. And we don't have enough clinicians worldwide to take care of us.

This is an opportunity for healthcare technology. And what we see happening in the world of Healthcare systems is that countries all over the world are looking at how do I deal with people getting older, sicker, a shortage of clinicians and a shortage of Healthcare institutions or aging Healthcare institutions. This is a view of what sustainable health care systems can look like in the future, and I'm going to start at the bottom.

World Health Economic Forum actually did a study in the past year of 5 countries looking at what you see sustainable healthcare systems looking like in 30 years. The countries they studied were China, U.K., Germany, Netherlands and Spain. It was remarkable, the similarities, among those countries. And it all started with what is on the bottom, wellness and preventive care. Empowering people to be healthier. In fact, making them accountable for their care, getting them up and walking, getting them eating properly.

We see this as an opportunity for Philips as our Consumer Lifestyle business is now certainly focused on activity and healthy leaving. Take it up one level. We must now. And we see Healthcare systems all over the world looking to move health care from expensive hospitals into lower cost settings, including the home. Patients are more comfortable in the home. They are not at risk for developing a hospital-borne illness, and it reduces the cost of care to take care of patients in the home. And it is true now that Healthcare systems all over the world from right here in the United States to China, to Japan, which Danny will talk about, are thinking about how do we take care of patients in their home.

Healthcare systems are also thinking about I need to improve my quality at a lower cost. Improve my quality at a lower cost. This is a tremendous opportunity for Healthcare consulting, improving the workflow in the radiology department, our cardiology department or our critical care area, improving productivity of the Healthcare system, helping with alarm management and, of course, providing value solutions.

Data and information become critically important in sustainable Healthcare systems in the future. What everyone is looking at now from here in the United States to Dubai, looking at how do I use data to ensure that my Healthcare system is following the clinical protocols that I wish it to follow so that we improve clinical outcomes and are able to take care of patients at the same or lower cost.

And finally, if we have a rise in chronic disease, of heart disease and cancer, we need less invasive ways to treat patients. Minimally invasive therapies enables shorter length of stay, more comfort from patient, faster recovery and, once again, lower cost of care.

I am going to come back to all of this as I explain to you Healthcare's new guiding statement, but before I do that, I want to talk about what we see happening in markets in the regions.

And so in North America, we do see flat growth for this year and 2013. However, the long-term fundamentals are still very strong. Despite the fact that we have short-term uncertainties in the economy, 30 million patients will still enter the United States Healthcare system. 30 million patients will need to be diagnosed. They will need to be monitored. They will need to be treated. They will need to be taken care of. There will be a focus on clinical information integration. There will be a focus on lower cost settings, including into the home.

In Europe for this year, we see flat to low single-digit growth. There is pent-up demand in Europe. And Bas Verhoef's going to come up later in the day and talk extensively about what we see in various countries in Europe, but there is a mixed outlook, of course positive in Northern Europe, and Southern Europe and Eastern Europe will remain weak for this year. It does provide an opportunity, still, for multiyear solution-oriented deals.

Desmond Thio is here from China, runs our China business. And we continue to see double-digit growth in the market in China. The government is continuing to invest in Healthcare and equipment upgrade and medical insurance. More people are covered in medical insurance now in China than before. This also drives the demand for Healthcare. And we have opportunities in China in home health and clinical informatics. Collective purchasing provides an opportunity for solutions selling. So it's not just about a box, it is about the full solution that accompanies that to improve workflow, improve productivity and save a life in Healthcare.

Latin America, we see mid-single-digit growth. Public spending is recovering. Private spending is continuing to increase. And in Latin America, we see a keen focus on clinical informatics. And I think Mike Mancuso is going to talk a bit more about that.

Middle East, Turkey, Russia, Central Asia and Africa, we see double-digit growth and we continue to see government investment.

In Asia-Pacific, we talked about that last year in Capital Markets Day. We're still seeing double-digit growth in India and Southeast Asia. Government and private spending continues. And Danny Risberg is going to come up and talk later about Japan. We see mid-single-digit growth in Japan. And Danny will show you that Japan is an indication of where Healthcare systems are going and a very good case for us to follow for the rest of the world.

So we're doing what we said we're going to do. Markets are changing. They have never been this dynamic. They provide an opportunity for innovation and IGIT, image-guided intervention, clinical informatics, hospital to home and consulting services. And this brings us to our new guiding statement.

The Philips Healthcare executive team got together in July 10, in fact, for the whole week last year, and we said where are we going? Our strategy at that time had been 6 years old and we said, "Where is the Healthcare market going now and in what areas will Philips Healthcare play?" And this is what the Philips Healthcare executive team united around. We are dedicated to create the future of Healthcare and save lives. What company is better? Philips has always been incredibly innovative and in Philips Healthcare, we have the most innovative solutions in patient monitoring, ultrasound, image-guided interventions, IXRs, CT. And so we developed innovative solutions across the continuum of care.

Continuum of care is pictured on the bottom of this. It is the woman, alone in her home, who falls. Her monitor alerts our call center who dispatches an ambulance, who brings her to the emergency department. In the emergency department, she's taken care of, she's diagnosed, she's been treated. Perhaps she goes into a general ward, she's monitored. And we discharge her with care back to her home in a way that won't increase readmissions back to the hospital. That is the continuum of care. Philips is developing innovative solutions across the continuum of care. Not just in the imaging department, not just in radiology, not just in cardiology, not just in the home, but across the entire continuum of care. We cannot do it alone. And when Mike and Brent and Gene come up to talk about this and what you'll see in the solutions showcase is we create the future of Healthcare in partnership with our clinicians and our customers because that's where care is being delivered, that's where we can save a life, that's where we can improve the workflow. And partnership with our clinicians and our customers to do 3 things: improve patient outcomes, with more sick people in the world, we are going to want to live longer with heart disease, longer with diabetes, longer with cancer; provide better value, whether that be lower cost in some areas or improving workflow and improving productivity in other areas; and expand access to care. Access to care means rural areas in North America. It also, of course, means rural areas in China, India and parts of the world which never had care before. And this is the point, isn't it, why World Economic Forum is so focused on Healthcare now. We are delivering Healthcare and Healthcare technology to parts of the world that a decade ago we didn't even think about.

So I want to give you 3 examples of creating the future of Healthcare. And I want to start with a minimally invasive therapy that replaces open-heart surgery. And it's EchoNavigator. Maybe some of you have had people that you know who have suffered from heart disease. 3 years ago, my father needed a triple bypass and aortic valve replacement. I took him to a very well-renowned hospital here in Boston. And he had a 7-hour operation. His chest was cracked open. He's 76 years old. His chest was cracked open. He had a 7-hour operation, 6 hours on the heart-lung machine. After he got out of that operation, he stayed in his hospital bed for a full 2 weeks. He didn't get up. He was too weak to walk. He couldn't raise his hands. Being on a heart-lung machine for that long causes depression, causes weakness. And if you don't get up and walk, if you don't walk for 2 weeks, your muscles atrophy. He left the hospital with a list of 17 drugs and we had to put him into a nursing home for a week.

When he came out a week later, his daughter -- and I know a thing or 2 about Healthcare -- was confronted with a father at home who really could not walk, a list of 17 drugs, a list of an incredible amount of doctors' visits, activities and foods that he needed to eat. And I say, every day, I wished that hospital had EchoNavigator. EchoNavigator is simpler, it's more accurate, it's minimally invasive. What allows it to work is what you see on the screen. The combination of our leading ultrasound technology and our leading Interventional X-ray, combined together, allows the cardiologist to see in the patient, to see where that bypass has to go, to see where the aortic valve needs to be placed. This is unique to Philips. It's the combination of our 2 leading technologies to allow a clinician to see into the body as to where to place the aortic valve.

My father, perhaps, instead of having a 7-hour operation could have had an operation minimally invasive at much less that time. And instead of laying in his hospital bed for 2 weeks, certainly, would have been up and walking in home in 3 or 4 days. I think his outcome would have been better today. It would have been better for my father, it would have been better for me, it would have been less cost to the system. And he would not have had the 3 readmissions that he had immediate following. Unique to Philips. And it's creating the future of Healthcare.

In 2006, when I started taking over the Patient Care & Clinical Informatics business, I had a vision. And that was people going to emergency departments and sometimes dying because you're not monitored yet when you go into the emergency department. And I thought why can't it be that we would have a simple noninvasive monitor that could be put on a patient in the emergency department. The patient could wear it through their hospital stay and wear at home. And we're very glad to show the latest in our IntelliVue patient monitoring family, which we introduce later this year. It's called our respiration patch. It sits right here. In clinical trials, patients cannot feel it. It measures respiration, pulse, activity and posture. Because posture, because we want to know in an ICU, if you're sitting up, if you're laying down, where you are. This can be put on a patient in an emergency department. They can wear it through their entire hospital stay. While in the hospital, it wirelessly communicates to our guardian clinical information software and it trends patient data. We know, for example, that 6 to 8 hours before patient has a cardiac arrest, we will see deterioration in their ECG, deterioration in their pulse, deterioration in their respiration rate. And so the rapid response team, our clinicians, can be alerted to the adverse events that a patient may be having.

And even more beautifully, after the patient is through with their diagnoses, their treatment and their monitoring, this can be worn home. We are very committed in Philips and in improving the transactions between hospital, patient discharge into the home, making it easier for the patient, easier for the Healthcare system and easier for their families. What we will see downstairs is -- in our solutions showcase, is our Banner Health pilot. We're working together with Banner on taking the top 5% of their patients who account for 50% of their costs and improving the transitions from the hospital to the home so that we can help Banner save Healthcare cost and help save more lives and improve hospital transitions from the hospital to the home.

And finally, speaking about the home, we know that we can prescribe whatever we want. And if patients do not take the prescription we give them, we have no impact on Healthcare and we are, therefore, not creating the future of Healthcare. So patient compliance is critically important. EncoreAnywhere -- I'm just going to take a moment to turn my iPad back on, it went to sleep, so I can show this to you. EncoreAnywhere is a mobile device, which ensures that sleep disordered patients can have compliance with their therapy. It records patients' therapy, data, treatment history. It allows all the patients, clinicians to collaborate together. It gives patients and their families updates on their status. And in order to be reimbursed, providers need to ensure patient compliance, and this does as well. We have 4 million lives covered on this system. Someone at dinner last night asked me if we're really doing clinical informatics in Home Healthcare and, of course, we are, with 4 million patients on our compliance system, creating the future of Healthcare.

Every new hospital that is built, we work together with our colleagues of Lighting to help create a healing environment within the hospital. I wanted to actually show you this video because I felt if I just told you that, you may be a bit skeptical and so I want to show you the lighting solutions at Philips, at Phoenix Children's Hospital, that created a healing environment.

And if you could, please, play the video.


Deborah DiSanzo

There are so many opportunities in Healthcare. We have many sick people, we're getting older, there's a shortage of clinicians. There's an opportunity to build hospitals that are healing environments all over the world. It provides a great opportunity for Philips in our innovation, in image-guided interventions, in lighting, in clinical informatics, in home, in patient monitoring and the innovations that we offer. And our focus on innovation has given us strong market positions and strong customer satisfaction leadership scores. The numbers in blue are our market-leading positions that you know in Interventional X-ray, image-guided interventions, ultrasound, patient monitoring, AEDs, digital Telemetry, clinical informatics, sleep, respiratory care, home monitoring. And the items in green are what we have worked hard at to drive a superior customer experience with Philips. And you can see, Gene and Mike are going to come up and talk about these, but you can see our Net Promoter Score, #1 positions in Patient Monitoring Interventional X-rays, CT.

And we are pervasive. I said it's not just about the radiology department or the cardiology department, but it is all over the Healthcare system. So we monitor 190 million patients in the world. 4 million people sleep and breathe easier using our sleep apnea machines. We chart 840,000 patients on our critical care software. 390 million enterprise studies are archived in our cloud, comprising 10 petabytes of data. You saw at Phoenix Children, we have 500 such ambient experiences and growing every day. 1 million AEDs are saving 2 lives a day with our defibrillators, and we bring 40 million babies into the world on our fetal heart monitors. We make a difference to millions of people around the world across the continuum of care from the home to the hospital and back to the home.

But what about operational excellence and Accelerate!? So you saw a slide similar to this from Frans, and this is accelerating Healthcare's Accelerate! slide in the 5 pillars. Greg Sebasky is going to come up and talk about this in detail, so I just want to give some particular highlights here. Expand our value offering in locally relevant solutions. Well, that, in fact, is what Gene Saragnese, Mike Mancuso and Brent Shafer are going to come up and talk about. Upgrade our marketing capabilities. We need to upgrade our marketing capabilities from idea to market, market to order, order to cash in order to have really locally relevant solutions and to create the future of Healthcare. And Greg is going to talk to you about this in detail.

And resource to win. We are resourcing innovation investments in hospital to home, image-guided interventions, clinical consulting, value segments and enterprise consulting. And we continue to make market investments in China, Latin America, India and ASEAN. Ron W. talked about End2End and Greg will also come up and talk about End2End. We started our End2End program in Healthcare a little later than lighting and consumer lifestyle did, but we are now moving at an extremely fast pace. And Greg is going to come talk to you about this.

You cannot transform a company without transforming a culture. And so Frans talked about our culture initiative, we are very focused on this in Healthcare. We need to move faster. We need to have a growth in performance culture. We need to be held account accountable for what we say we're going to do and then we need to do it.

We have said we'll have 72% of our executive level managers and senior director managers trained in the Accelerate! Leadership Program by the end of June. And this is what we did in 2012. We realigned our business group's structure. Underneath our 3 -- 4 business groups, we had 40 business lines. We've now reduced those to 10 business innovation units. Business innovation unit. What the business innovation unit is mostly responsible for is innovation and creating the future of Healthcare. We made the organizational simpler and we focused them on what their core objective is.

We formed 4 lean market groups, which I'll introduce in a moment, to support our 17 markets. We're focused on improving sales force productivity. Frans talked about CRM. We need to get our sales force back out with customers spending the majority of their time with customers instead of on bureaucratic things. That's why we're giving them, arming them with digital tools, customer relationship management and other associated support services and a sales and support center, so that they can get back out with customers. And Greg is going to speak in detail about this again as well.

This leads to a path for value, which we were shown the Philips path to value. 2011 is what we showed last year. 2012 is the progress that we've made. The yellow indicate that we've made progress, but we are not letting go of operational excellence through Accelerate!, reducing overhead, leveraging our industrial footprint.

And here is what we'll focus on in 2013: creating value from our past acquisitions, upgrading our marketing capabilities, improving our sales force productivity, creating a growth and performance culture, increasing our value segment portfolio, continuing to close -- to close the gap in leadership and imaging and growing our consulting services business.

This is the team that will do this. So Gene Saragnese has been here presenting to you for the past 4 years, Executive Vice President, CEO and running Imaging Systems. Mike Mancuso is the Executive Vice President responsible for Patient Care & Clinical Informatics. Mike, previous to doing this job, was the General Manager for the Patient Monitoring solutions business. I've told you for years that it's a patient monitor, but it's the solution around the patient monitor that makes the difference and that is the business that Mike ran.

Brent Shafer, Executive Vice President, CEO on Home Healthcare, has been doing a phenomenal job in Home Healthcare for the past 2 years. Michael Dreher is our new Senior Vice President, CEO of Customer Services and also Operations. Michael Dreher had previously been the head of Customer Services for Patient Care & Clinical Informatics and is bringing that knowledge to this position.

We have now realigned our market groups into these 4 lean market groups: Steve Laczynski, who was running North America, is now running Americas from Canada to Brazil; Arjen Radder is running Asia Pacific; Desmond Thio is running Greater China; and Bas Verhoef is running Europe, Middle East and Africa. You see that there are now more markets -- market groups represented at the Philips executive team member.

I want to also introduce Ingo Bank, who is our chief financial Officer; Greg Sebasky, who has been talked about quite a bit this morning, but I also want to just mention. Greg ran Customer Services for 7 years. Every year that Greg ran Customer Services, margins increased, operational excellence improved, efficiency increased. I asked Greg in October, "Please run the transformation from Healthcare." He accepted, and we could not have a better leader of the Healthcare transformation to ensure that we upgrade marketing, sales productivity, drive a growth and performance culture, drive operational excellence.

Diego Olego is our head of strategy and innovation; and Danny Risberg is the head of Japan, who will be speaking later today.

So what did I tell you? We're driving profitable growth and we're delivering on our commitments. The Healthcare business is dynamic. It's growing. It's profitable. And it provides a great opportunity for Philips' innovation in IGIT, clinical consulting, Hospital to Home and all of our businesses. Accelerate! We are fully engaged and we have actually accelerated Accelerate!. And it's driving customer centricity, operational excellence and a growth in performance culture. And while we will have a slow start to the year, we are on track to make our 2013 commitments.

So thank you very much. And with that, I would like to introduce Ingo Bank, our Chief Financial Officer for Healthcare, who will give you an update. Thank you. Ingo?

Ingo Bank

Good morning. Welcome to Boston for this year's Philips Healthcare Capital Markets Day. Also, warm welcome to those joining us on the webcast this year. In the next 30 minutes, I would like to give you a financial update. I will also review some of the market dynamics that we are experiencing right now with a specific focus on the United States of America. I will also review with the -- you the progress that we've been making in the operational excellence programs. We will look -- take a look at the structural cost measures we've taken last year and all of that translates into the path to value for Philips Healthcare. And then there will be, later on after Greg Sebasky, also time for Q&A.

Let me start with the key takeaways. They will summarized, in a way, what I will be talking about for the next minutes or so.

We expect a slow start into the first half of 2013. For the full year, we have a very solid outlook for our growth geographies. The North American market right now is challenging. Margin improvement and growth will drive return on invested capital further. And we are on track to meet our 2013 targets.

So let's take a first look a bit at our performance scorecard. On the left-hand side, you see our currency comparable equipment order intake. On the right-hand side, we've plotted our comparable sales growth. As you can see, after a difficult year in 2009 with the recession, we rebounded well with a 9% order intake growth in 2010, extending that growth well into 2011 and closing the year 2012 with a solid performance of 5% in equipment order intake.

If you go to the right-hand side of the slide, you see that a similar picture comes up for our sales growth. A difficult year, 2009. And then a number of years with mid-single-digit growth performance, ending the year 2012 with 6.4% sales growth. That clearly reflects the innovation strength that is out there right now in the market for us. It also reflects our solid market positions and is also an indication of the return on the investments we've taken in the last few years into our markets. So overall, this is a solid track record from a growth and equipment order intake perspective.

Another important indicator for us is the development of our order book or backlog. And in the chart here, we have indexed our order book with the first quarter of 2008 to give you an indication. Right now, we're operating 25% above that level that we had in 2008. Also, in 2012, the absolute backlog ending the year was higher than in the preceding years. However, the year-over-year growth in that backlog was less profound than it was in previous periods. And clearly, that means that from an order intake perspective, from a backlog perspective, we faced some headwinds, particularly here in the United States. And that also means that this will translate to -- into a somewhat slower start into the year 2013 from a growth perspective.

If you look at the geographical composition of our sales growth in the last 4 years, and we are showing you here 4 years, the nominal compound growth rates. You see that, overall, we've been able to grow with 8% over this period. And we've broken down for you how this growth came across: the growth markets, Western Europe; other mature markets that includes Japan, Korea, Australia and a few other smaller mature markets; and then North America.

Let me start at the top. 22% compound annual growth rate for a growth market is quite an achievement. China, LatAm, India, Brazil and also Russia have contributed all to this. Increasingly, we also see contributions from markets in ASEAN and, to some extent, even from Africa. And again, they're a reflection also of the returns of some of the market investments we took in previous years. Our share in revenue of growth geographies in the total is now at 24%.

Western Europe, as you can see, is stable. And my colleague, Bas Verhoef, will talk more about Europe this afternoon, so I won't steal his thunder at this point in time.

In the other mature markets, the nice growth of 18% was, to a large extent, driven by the performance in Japan, where we saw a very nice rebound in the year 2012, also a little bit on the back of the stimulus program that was injected by the Japanese Government following the tragic event of the earthquake in 2011.

Japan for us is a very important market. It's the second largest market also for our Home Healthcare business after the United States. And my colleague, Danny Risberg, this afternoon, will tell you more why we're so excited about the opportunities that we see also going forward for us in Japan.

And then there's North America with a 5% growth, nominal, over this period, which I believe is a very respectable performance given an environment of policy changes and uncertainties. And given the importance of the North American market, we want to spend a bit more time with you on that.

In this chart, you see on the left-hand side on the top, the currency comparable equipment order intake. And on the bottom, you see the comparable sales growth. We split the graphs in 2. On the left-hand side, you see the annual growth rates. And on the left-hand side of the graphs, you see the quarters of 2012 broken out. Let me start with the currency comparable equipment order intake.

Strong year-end 2010 with a growth of 11%, so carrying well into the year 2011 with 5% growth. We were even able to carry that 5%, as you can see, into the first quarter of 2012. And then uncertainties started to emerge here in the United States, particularly around the elections and what the elections would mean for the health care reform. Later on in the year, we also saw more and more discussions around the fiscal cliff and what decisions might come across with respect to health care spending here in the United States. And that resulted into 3 quarters of negative order intake growth for our U.S. business. Overall, that meant that we closed the year with a minor -- or minus 2% from an order intake perspective.

If you then look below at the sales growth, you see that in 2011, we had a very strong year with 7% growth. Also, we carried that momentum well forward into the first half of 2012 with 4% and 7%, respectively. But then, of course, our sales growth pretty much followed the pattern of our order book and order intake development and we had to close the year with a minus 3% sales growth in the fourth quarter.

So clearly, we had some challenges here in the marketplace in 2012 after a very strong year in 2011. We expect that some of these uncertainties will also stay with us in the beginning of this year. And let me speak about those in a more explicit way now.

So there's a lot of information out there right now about the U.S. health care market, the health care reform. And it's not always clear what that really means. So what I'm trying to do now is trying to clarify that, particularly also in the sense of what that means for us.

You see some 6 developments that we've listed here for our businesses. You can see that 2 to 3 of them are unfavorable for our business and the other 3, the remaining 3, are largely neutral to our business. So let me start going through the ones that are unfavorable for us.

Economic uncertainties. The U.S. economic recovery is relatively slow and very fragile. And obviously, that is unfavorable to all of our businesses right now that you see in the upper right corner with Imaging Systems, PCCI and Home Healthcare systems. The medical device excise tax was introduced toward the 1st of January 2013. It applies to 55% of our business here in the U.S. because our Home Healthcare business and Customer Service business is largely exempt from the tax. For the remaining impact, we have largely mitigated that through efficiency measures internally and also in our value chain.

And finally, the one that is still unfavorable for us right now is the capital spending in hospitals. Clearly, hospitals are coming through what it means when the health care reform will be implemented. And they're pushing out decisions for capital equipment at this point in time. At the same time, we also see that investments in IT are continuing to grow. And our PCCI business is very much benefiting from that at the same time.

The remaining 3 developments that are largely neutral to us are the competitive bidding, second round, that has been ongoing in the Home Healthcare business. So that is around the Home Healthcare business only. It addressed around 60% of the applicable market. It only drives the sleep and respiratory care, so our home monitoring business is exempt for that. So it applies for our CPAP and APAP devices, oxygen and the supplies and accessories around it. It has created some uncertainty for our durable medical equipment supplies here in the United States. And it impacts roughly 7% of our global HHS revenue and 1% of the total global Healthcare revenue.

Sequestration included a 2% reduction in Medicare payments. Medicaid is exempt for that. As you know, that approximately, on average, a hospital in the United States has its income with 43% from Medicare. You see that the impacts for us on a global scale on growth for us is very minor with maybe 3 basis points.

And then finally, the fiscal cliff included an assumption increase for certain advanced diagnostic equipment in nonhospital settings. And the fact that it's a nonhospital settings on outpatient centers means that the impact is very negligible for us. Just to give you a number for the whole industry, it's a cumulative impact of 0.8 billion over 10 years. That's what it means.

So if you look at this, none of these developments really for themselves stand out or have, in isolation, a very significant major market impact. It is rather the combination of all of them at the same time that currently create a lot of uncertainty with market players and is clouding and delaying decision-making on the short term. And that's the way we have to look at what's going on right now in the U.S. market.

Mid to long term, the picture, obviously, is much different. And you can already see that -- what we expect from the U.S. market, that the fundamentals for us are very strong with by and large a very positive impact and outlook for all of our businesses. The health care demographics, Deborah talked about an aging population, a rise in chronic disease, shortages of nurses and physicians and a huge amount of unmet clinical need is still out there. And all of our businesses will certainly benefit from that.

We estimate that the equipment base here in the United States is aging with about 2 years. So at the moment, where certainty comes back into the system, pent-up demand will be there. And clearly, all of our businesses will be benefiting from that.

And then there is, of course, health care reform, also referred to as the Affordable Care Act. First and foremost, it will mean that approximately 30 million new patients will be brought into the health care systems. You can see that accounting -- accountable care organizations will be made responsible for the total cost of a patient through the continuum of care. So that means from the preadmission to the post discharge in a hospital. And they will receive a fixed amount for improved quality of care as opposed to their current fee-for-service system. They will need integral solutions that we can provide across the spectrum of all of our businesses: in Imaging Systems, PCCI, Home Healthcare and our consulting unit. Particularly, Patient Monitoring, Clinical Informatics and Home Healthcare will benefit from the need to provide this integrated solution across the continuum of care.

The health care reform also incentivizes hospitals to move into more cost-effective care settings. And we expect that many more hospitals will move certain care settings away from the hospital into the home. Deborah spoke about it, and you will see in the solutions workshop this afternoon, where we give you an example at Banner, what this will look like. So overall, as you can see, we expect health care reform to be very beneficial for our business.

Meaningful Use. There's a legislation about the Meaningful Use for electronic health records. It basically drives the need for interoperability and exchange of data in a hospital. If you like, a digitization of health care. And for us, it simply means that more capital expenditure is spent on IT. And that moves also nicely into our PCCI business, and we're benefiting from that.

And finally, improved care at lower cost. It's nothing new. It's been there for a while. The reimbursement changes are a public knowledge and have already increased the need for solutions and consulting services from our customers. It has a positive impact, obviously, then, for our PCCI and Home Healthcare business. We see an increased need for value offerings here in Imaging Systems, or the performance segment, as it is called in the United States. And my colleague, Gene Saragnese, this afternoon, for Imaging Systems, will outline to you the progress that we've been making in this segment.

At the same time, if you look at improved quality, you have to also realize for Imaging Systems that it means that hospitals will be in need of faster and more accurate images to avoid the tendency of over-imaging and possible over-treatments that we sometimes still see here in hospitals. At the same time, it also increases the need for noninvasive therapies because noninvasive therapies reduce lengths of stay and they speed up the recovery of a patient. And with it, bring the cost per patient, the cost in a hospital, significantly down. So from that perspective, Imaging Systems will certainly also benefit from this trend.

So mid to long term, clearly the fundamentals of these markets are very strong. We are perfectly positioned to leverage those because they play very nicely into our capabilities, assets, positions and into our strategy.

I talked about revenue. I talked about orders. I talked about markets. Let's talk about profit. 2012, as you can see here in the graph, was a solid year for us. We were able to improve adjusted EBITA with 130 basis points in 2012 on this back of strong growth of 6.4%. We clearly saw our operating leverage into effect with earnings growing with about 24%.

You can also see in the light pink bar in 2012 that we executed a restructuring program to the tune of EUR 116 million to eliminate layers and lower our overheads. We continue to invest into growth geographies and intervention because there's a lot of growth momentum still out there for us that we want to capture. And we progressed well on our operational efficiency programs. And I will take more time in one of the following slides to go through operational efficiencies.

So overall, strong year for us for your earnings with growth providing us with operating leverage but also structural cost measures taken to lower our fixed-cost base in support of our midterm performance goals.

Let's take, also, a view at parts of our balance sheet and free cash flow. On the left-hand side, you see our net inventory as a percentage of sales. On the right-hand side, you see, if you like, our cash flow conversion from profit into free cash flow.

Let me start with the left-hand graph with the net inventory as a percentage of sales. If you look at 2012, we made tremendous progress by reducing our inventory levels, the 320 basis points year-over-year, which is very significant. We did that by simply improving our sales and operations planning. We removed layers between the markets and the businesses to increase the handshake in the supply-demand cycle between these 2 entities. We started to eliminate waste and buffer that were earlier on in the planning process. And we also increased our share in vendor-managed inventory in that year, leading to a 320 basis points year-over-year improvement.

On the right-hand side, you see our free cash flow. We had an excellent year in free cash flow. We improved our free cash flow year-over-year with more than 60%. Clearly, that was driven by our earnings improvement but also measures we took on working capital. I just spoke about inventory as one of that. And it has been the highest free cash flow generation ever in the healthcare sector that we were able to contribute. So we're very proud of that, and this has been certainly a very strong performance.

It's also good to see that the earnings-free cash flow ratio is back to our targeted levels of around 1. And we expect it also, going forward, to stay at that level. We will continue to manage working capital as a source of cash going forward, so we should also expect somewhat more improvements here going forward.

Now what does that all mean for return on invested capital? Return on invested capital is very important for us. It's part of our incentive structure. And if you look at our net operating capital, you'll realize that with 80% in goodwill and intangibles, top line growth and margin expansions are the key drivers for us to expand our return on invested capital. And that's exactly what we did in the year 2012. You can see on the left-hand side in the green bar, the green curve, that was growth and margin expansion. We expanded our return on invested capital with more than 200 basis points in the year. We're now operating well above our weighted cost -- average cost of capital, which we feel very good about. And we believe that going forward, in line with our performance on the midterm targets, that also this measure will increase going forward.

Let me also take a moment to tell you how we've addressed our cost structure in 2012, also with a view of what that means for the year 2013. We did that in 3 ways. Let me start at the top.

We deployed a single value-added layer and had a standard design for our businesses and markets. That helped us to reduce 40 business lines into 10 business innovation units. It helped us to eliminate 2 complete layers out of the organization. And it helped us, also, to increase the span of control for our managers. And as a result, we saw a lot of managerial overhead leaving the organization.

We increased the effectiveness of our sales support functions. Those of you who've been with us with the Capital Markets Day in the last 2 years, you might remember that we've talked about business centers and how business centers helped us to become more effective with the order-to-cash cycle. We applied the same principle, the same concept, and applied it now for our market-to-order cycle where we've now started to consolidate and harmonize functions, support functions, like quotation, pricing, dealer support, contracting and sales funnel management into centers of expertise that enable our sales force to spend more time in front of their customer.

And we've also started to shift from a traditional marketing investment pattern into a more digital marketing investment pattern with the aim, of course, to return the investment of our marketing spend.

And finally, we also looked at our industrial footprint and overheads. We took some portfolio decisions in Imaging Systems particularly to address gross margins. We made sure that in our businesses, if you have business support functions like logistics and operations, that these are managed at only one level in that business. Previously, they were managed at multiple levels in the organization. And, of course, we transformed -- we continued to transform our finance and HR organization in line with the principles that Ron outlined this morning. And that also, of course, helped to contribute to overhead savings in 2012 and will continue to also drive overhead savings going forward.

So overall, we've invested EUR 160 million in this program. 2/3 of that program have been executed. I expect that the remainder will be finished sort of by the month of May, June this year. And that means that we have, roughly, an expected payback period estimated for this program of about 2 years.

Operational excellence. You heard it the whole morning. Deborah spoke about it as well. It's very important to us. We always talked about operational excellence when we had you here in Boston in the last couple of years. And before I may go into more details here, let me tell you that we made a very solid progress from an operational excellence perspective.

There's 2 examples here. If you look at the low-cost country manufacturing overhead, we've migrated a lot of that over -- manufacturing overhead that we had in high-wage countries now into low-cost country settings. And the share of that is now 60% higher than it was in the year 2009.

On the right-hand side, you see the progress that we've been making for low-cost country sourcing. We actually overachieved what we promised to you last year. Particularly in Imaging Systems, we saw a very strong improvement of up to 640 basis points between 2009 and 2012. From an LCC perspective, PCCI is already operating well above the 50% overall targeted level that we have in mind for this. And also, home Healthcare system, which is not on this chart, is operating well above the 40% levels for LCC. So good progress being made. We're not there yet. We're going to continue to drive this towards the targeted levels.

What are our priorities? Also there, there's nothing new. We've continued to manage the same objectives and drive further improvement over the years. Expansion of manufacturing volumes in growth geographies is very important to us. And later on, my colleague, Gene Saragnese, will tell you about the great progress we've been making in Imaging Systems to do that and how we continue to drive it. Improving productivity. So anything but material is in this category where we've introduced lean methodology. And we also now introduced the ideas of End2End management in this. And my colleague, Greg Sebasky, later on, right after me, will talk about what that means from a productivity and an earnings perspective.

Service parts cost innovation is extremely important for our service business, Customer Service business. This is about material cost, material parts consumption. And it's quite amazing, actually, to see the great work that our service organization has done every to take material cost out of the chain. They've done a great job in 2012. We also expect them to do a great job in 2013.

Distribution costs. I started to talk about that last year, also against the volatility of oil and freight charges. Because, obviously, you need to look at not just the product cost but also the cost of bringing a product to your end customer. We addressed it this year. And the team did a great job. We were able to reduce our distribution costs by mid-single digits.

I talked about LCC sourcing. Bill of material, a lot has been said already this morning with the DfX conventions. Bill of material is the biggest cost factor from our cost conversion perspective for Philips Healthcare. You will remember that in 2011, we had some headwinds because of commodities. That was less the case in 2012. We improved slightly in the bill of materials, but we think we need to put this up quite a notch going forward. And the DfX conventions that Ron outlined this morning will clearly help us to drive that important cost factor for us further.

And finally, cost of non-quality. So that's about the warranty costs. That's about field quality costs. That's about scrap in the factories. And we set ourselves a target of 10% year-over-year improvement for that category.

So overall, solid progress, very important for us from a margin expansion perspective. And there's more potential out there. And we will need to do more here in that category and that we can do more here more as well. So I'm really excited to be helping to drive that going forward.

Obviously, some of the structural cost measures and the savings out of the operational excellence programs also used to reinvest into the opportunities we have. And in order for you to get an idea of what we do, we decided to show a little bit how we prioritized that spend, that investment spend. And also how we shifted over the years our spending patterns.

Let me start with market investments, which is the graph on the top. We've indexed the curve in 2009. And you can clearly see that for our growth geographies, we've grown very substantially in terms of investments ever since then. Sometimes proportionate with the growth that we expect from these markets but, in many cases, also ahead of the curve, so that we have the ability to grow faster than the market in some cases.

We've also kept the investment for our more mature markets stable. And with the mature markets growing, we became actually more productive in those mature markets. And we had the ability to reinvest some of that productivity in mature markets and shift it into investments in our growth geographies.

And the targeting investments, some of the examples are shown here as China, LatAm, India, ASEAN and Japan being a very important opportunity for us. And again, my colleague, Danny Risberg, will tell you more why we believe Japan is a fantastic opportunity for us in the years to come.

For innovation, a very similar picture. There we've also shifted more spending into our growth initiatives. And you see all of them here. You also heard Deborah talking about them, Hospital to Home, Image-Guided Intervention and Therapy, Clinical Informatics, the value segment and consulting services. And we also expect, going forward, that we will proportionately invest more into these opportunities while keeping our spend relatively stable for the existing technology base supporting our current business market positions, of course.

So investment is very important to gain the growth momentum for us forward that we clearly have. And obviously, the dotted lines you see on this chart are just directional. That's important for you to obviously understand.

So then, all of that basically translates into the path to value. On the left-hand side, you see the exit of 2012 with a reported EBITA of 12.3%. If you add back the restructuring we took in 2013, you will notice that we do expect a very minor restructuring charge this year. It's only going to be a very small fraction of the EUR 160 million we spent last year on restructuring. I talked about growth, and I talked about the opportunities we have out there in our growth geographies and also in Japan.

Operational efficiency. I talked about bill of material. I spoke about cost of non-quality, service parts, cost for innovation, low-cost-country sourcing will drive our path to value. Over Cost reductions, so reducing those 40 business lines into 10 business innovation units, eliminating 2 complete layers, increasing the span of control. Transforming the finance and HR function also in health care means that we have become a leaner organization with a lower fixed-cost base and less overheads. And that will contribute clearly into our performance this year.

We will continue to invest, and I just mentioned what these areas are for us investment. And then there's small residual impact that we estimate is going to be around for us for the medical device excise tax as rather minor. But overall, this whole program will clearly help us to deliver on our midterm performance targets, which are between 15% to 17% reported EBITA.

Summarizing key takeaways. Growth outlook. We expect a slow start into the first half of 2013. Overall, we have a solid outlook for our growth geographies. The North American market, I spoke about, is challenging on the short term. Margin improvement and growth will drive return on invested capital further. And we are on track to meet our 2013 targets.

Now with that, let me -- let me now introduce my colleague, Executive Vice President Greg Sebasky, and our head of Accelerate! and business transformation. Thank you very much.

Greg Sebasky

Well, hello, everyone, and also hello to all of you on the webcast. And boy, I feel like I've been introduced a few times already by Frans, Deborah, Ron and Ingo, setting high expectations for me, and I think that's rightly. So when Deborah asked me to take on this role as she indicated in November, after 7 years of running the services business and actually going through quite a transformation with that business over a 7-year period, I jumped at the chance. And there's a number of reasons for that. First one, Deborah, as you can see, is a person that's hard to say no to. I think that's pretty clear. Secondly, I think the importance, as you heard today, Frans, Ron, Deborah, the entire executive committee really has committed themselves to this program in a very visible way, even to the extent as you've seen in some of the slides that they're sponsoring and, in some cases, actively involved in many of the projects as part of Accelerate! and, really, leading by example and being role models for the organization.

I also had a chance to meet with a number of people that are doing transformations in other companies, including someone from IBM who's been doing this for 10 years. And the excitement that comes there from addressing a broader array of opportunities as they did in IBM in some of these other large Fortune 100 companies gets me very excited about helping Philips achieve -- and Philips Healthcare achieve its full potential.

And then lastly, more serious, I think, is about an obligation we have to shareholders to extract all the value we can for the company. As Deborah mentioned in the conversations she's having with health ministers around the world and that we all have with people in large companies that are going through the largest changes in Healthcare that we've ever seen, we have an obligation to help transform our business in order to help them transform how they deliver Healthcare to create what Deborah said was sustainable healthcare systems.

And then also, transforming the business for our people. We're going through a large transition, and will, through a large transition of baby boomers to new employees that look for certain things and corporations as we grow in emerging markets and have to bring on talent. We're competing with other well-run companies for that talent. And so having a organization that's run very effectively under this new Philips business system and has the exciting mission and guiding statement we have is also an important part of this transformation. So those were all the reasons why this is such an important thing to do for Healthcare.

So what I'd like you to leave with today is understand that the Accelerate! program for Healthcare is a comprehensive program that's going to cover all of Healthcare. It's not about addressing a specific business, a specific market or process or function that's having certain problem. It's about addressing the End2End organization and addressing all of Healthcare and bringing everyone along in the way we want to work in the future. It starts with an intense focus on the customer experience through deep customer insight that drives our innovation. And we talk about innovation, it's not just products. It's business models, it's other ways we create contracts and long-term partnerships with customers. We want to create more speed, more accountability and not just for executives with the new LTI program that Frans talked about, but create more accountability for all of our people. So we're not just measuring activities, but actually measuring results very deep into the organizations. And still allowing for entrepreneurial behavior in our markets and in our businesses.

And then lastly, this program will help to improve, in some cases, margins, asset utilization and deliver on this Path-to-Value. Some projects, you'll see, just affect margins, some will affect working capital, others affect the entire chain, as well as customer satisfaction. So those are the takeaways I'd like you to understand from today.

So first, let me take you back to the Philips business system that Frans described to you. The Accelerate! activity really takes place in the Philips Excellence part of this circle. Deborah and Frans have already talked very compellingly about our mission and vision and guiding statement, the Philips group strategy where we invest. Ingo and Deborah talked about where we're investing in Healthcare, both in the product categories, but also in markets for the future. Frans talked about the Path-to-Value as has Ingo, in terms of how this all comes together. And then the CAPs, which are very, very important part of where we're investing and defending capabilities in the marketplace that we've always had. So the global footprint, our innovation heritage, people, the brand, the strong balance sheet. And then for Healthcare, we actually add another cap called clinical evidence. More and more, our customers in the sustainable healthcare systems need us to sort of problem solve with them, and then with clinical evidence, bring products to market that have value that exceeds the cost of those solutions. That's becoming much more part of the conversation we're having with our customers. So we add clinical evidence as another cap for the Healthcare business.

The Healthcare Accelerate! program lives on the same 5 pillars that Frans described to you earlier. And Deborah showed you that our program is customized and very specific to the challenges we have in the Healthcare business. We already talked about the new solutions we're offering to the value segment. But very importantly, under customer centricity, is this upgrading of marketing capabilities. We've got to be world class in that function if we're going to be successful over the long run. Because it's taking those deep customer insights for products, business models, and extracting those from the markets and creating locally relevant solutions that you've seen some examples of today and well throughout the day that are going to allow us to take share from our competitors, even in markets that are starting to grow more slowly than they have traditionally.

Resource to win, Deborah and Ingo covered that already, but that is part of the Accelerate! program. And then End2End is an intense part of the activity. In 2012, we already finished a couple of projects. And it says clinical informatics and Interventional X-Ray were the 2, but it wasn't the entire business. These End2End projects are being approached at the BMC level, so Business Market Combination. In the Healthcare, we have 68 of those, right? 4 businesses times 17 markets. So we're just working our way through this process. As Deborah indicated, we started a bit later, only 8% of the revenue was impacted. I'll talk to you later about how we move to 25% this year and go beyond that in 2014. And then also in End2End, the beginning of End2End starts with idea-to-market. And so we will be attempting to use that process to accelerate our time to get solutions to the market ahead of our competition, supported again by clinical evidence, one of our CAPs.

Culture, we've talked a bit about this today. But this is a very, very important part of the foundation for how we change the company. Not just to mention accountability and speed, but also to unfreeze all the old relationships that may have existed in a company that by its nature is going to have matrix relationships and a matrix organization. And the work we've done through the Accelerate Leadership Program and the training we're now deploying to our people is going to begin to improve our ability to work together in a much faster way.

In the area of operating model, as Deborah indicated and Ingo reinforced, last year, we did, in fact, makes a bold move to restructure the organization along these 10 business lines versus 40. So that provided a great level of simplicity. And then formed 4 very lean market groups over the 17 markets we have globally. Taking 2 layers out, it was painful, but we did it. And now, we have to make sure with the remaining people in the organization, we can use those people effectively, and I'll talk a bit about how we're improving sales force productivity by redesigning some of the front-end organizations to better support our sales people that call on customers and to dramatically improve their productivity.

So let me start with customer centricity. As I mentioned, not all functions need to be world class. We certainly would like to be top quartile in all of our functional processes, but marketing is one where we have to be word class, and Deborah has indicated that to all of us, we all know that. So we've actually streamlined the marketing organization from over 600 different job descriptions that were highly customized by business and by organization to just 20 job categories and 8 job titles with specific job descriptions, specific accountabilities and KPIs. And then we're beginning to re-skill the remaining marketing people in the organizations through the Healthcare marketing academy to gain the skills that are going to allow them to better define, along with R&D, the solutions that we need to bring to the markets so we get the product definitions right at the start of the process. But beyond that, when we're selling the products in the markets, defining which profit pools we'd like to go after, which ones we don't think are attractive, and then becoming much more productive in the process of capturing value in the marketplace.

We'll also improve the amount of time sales teams spend with customer. I think as we've mentioned earlier, we've never had a CRM system in Philips. Had some experiments, but never had a CRM system. That's pretty surprising given the kind of results we're already achieving without one. So we're doing a couple of things now. We're going to establish these sales support centers to take all the administrative burden off the sales reps so they're not doing as much paperwork.

And then the salesforce.com, which we've adopted, a cloud-based solution you're very, very aware of, first in North America and rolling out across the rest of the world in 18 months across 17 markets. It's a pretty impressive rollout that's being done for Healthcare and the other businesses. So it's the first time we've actually been able to harmonize processes and standards across the globe not just in Healthcare, but also across all Philips. The combination of those 2 things is going to allow us to at least increase the time our sales people can spend with customers by 2x. And that's going to be hugely important for managing the relationships, again, having those consultative selling processes we'd like to have that help bring better insight to the organization for new products and solution definition, as well as the ability to close business on a more productive basis.

We'll continue to work to enhance the customer experience. A part of Accelerate! also allows us to have these customer fulfillment centers, so for the order-to-cash process to be able to be a much better, reliable vendor once we've secured an order to bring those products to a customer on time, complete, installed to their satisfaction and training their people so that they can use those solutions productively. And we're currently performing at around 96% there. We think we can move towards 100% as part of the Accelerate! program. And that's a big challenge for the operations team.

And then lastly, as Ingo mentioned, we're still going to create value in service through margin programs like service parts cost innovation, but very importantly, because service is still a big component of the purchase decision from customers, both for new customers, as well as for repeat purchases. We're going to continue to try to capture the leading positions across all of our individual businesses for service delivery. And we've done quite well in North America, China and some of the other growth geographies, but we can do better here with service delivery.

Let's talk about End2End for a few seconds. End2End, as Frans mentioned, is a comprehensive program that will look at driving to link idea-to-market, mark-to-order, order-to-cash in a consistent way. Many companies like ours have started traditionally to address process improvement in individual elements of that value chain. The way End2End works and the way we're training our people, and it's not a new methodology, we're borrowing best practices from other companies around the world, is to really link these things together. And as you start the project, define the entire value chain for the customer and figure out where those speed bumps are that need to be addressed, or in some cases working all the way back to the front end and potentially redesigning a product or solution, or creating a new offering for the customer that's going to create greater value. And as I said earlier, only 8% of our revenue was covered in 2012 with these programs, 2 completed, and then we'll move towards 25% of our revenue in 2013.

And what's exciting about this is it's not just some project teams doing this in a low level in the organization. These projects are actually sponsored and led by the individual business manager, or general manager of the business innovation unit that's driving it, along with the head of the market that's participating in the process. And so it's very much of a top-level driven thing, again, allowing people to role model and learn these skills. And so we're training managers, as well as many other people on End2End.

We see the End2End program, as I mentioned earlier, to improve the value propositions, in some cases. Some cases, we're just focused on cycle time and asset management. Some are focused on customer experience, some on cash flow, some on all of the above. And that's really where the power of this End2End program comes in, the insights and working on this together across businesses and markets has been a sort of a revelation for us.

Frans talked about the number of business models, as did Ron. That's important. You see Deborah's actually leading the 2 business model developments for software and services, Pieter Nota for standard products and Eric Rondolat for solutions. So again, that's an important activity that the exco is leading. But what's important about this, as Ron indicated, is that we create new businesses in the organization from time-to-time organically. Or if we're purchasing businesses through the M&A process, we can now begin to plug them in much more quickly to gain the advantages of scale that we have in the organization, to gain the advantage of our global footprint, which is one of the CAPs, because we can take those products and solutions to markets across the world much more quickly, and as you saw, the raw reduction in IT cost is tremendous. And the question that was asked earlier about disruption. I think in the cases of CRM and some other solutions, we're going to a cloud-based solution, it's a bit easier. There's still data migration involved, but we do believe that we've understood, and with Jeroen Tas' team, have a very strong understanding of how to manage those cut-over processes so we don't disrupt the business.

And as I said earlier, training internal transformation consultants so we can manage these activities ourselves. We've got a very deep team. We've talked about 800 people or so already trained in this area. Now through practicing in these End2End pilots, they're going to become more proficient in the skills. And all of us as leaders are going to learn those skills, as well, so we can be asking the right questions of our people and setting the right expectations in creating that accountability that we wanted.

So the beginning of End2End, I mentioned, is idea-to-market. Diego Olego, Deborah mentioned, our CTO, is here and he's helping me leading this project. But traditionally, in the medical device world for our kind of products, we can see fairly long cycle times in getting new innovations into the marketplace, particularly for new platforms such as a new ultrasound system, a new MR, what have you. Our goals are to reduce the cycle time by 30%. So if you're 4 years, coming down below 3 years, over 3 years coming down to 2. And we've selected some key innovation projects and real important ones to begin to work on the cycle time. And that requires a very, very good process, again, starting with a marketing capability that can provide a strong and clear product definition for what the customer and the markets are looking for. And then a strong development process including procurement, engineering and other organizations to achieve that reduction. And then a 10% improvement on the time-to-market for product enhancements upgrades and those kinds of things. And this is going to be dramatic because to the extent we can do that, we can get to the market faster, create greater adoption for these wonderful solutions that Deborah talked about and, hopefully, capture more value in the profit pool than we could otherwise.

Part of the cycle time-to-market, though, includes global regulatory clearances. Generally, Europe is first many times than the U.S., China or Japan, our big markets. We need to do a better job of working on these regulatory clearances more in a parallel fashion rather than a serial fashion to be able to accelerate the time-to-market to achieve that revenue, again, ahead of competitors. So this is also a reengineering activity that's going on as part of End2End.

And then lastly, I talked about clinical evidence. This is going to require clinical studies now to be included in that End2End process. So we're gathering the kind of clinical evidence that we can take to customers and help them understand the value that can create for them versus today's process, as Deborah talked about with the interventional procedures that are so valuable now in this marketplace. So that's what's happening in idea-to-market.

And then End2End, I talked about some early successes. Clinical informatics, again, a project led by Mike Mancuso, first in North America to look at how we could bring value to customers more clearly. And it's interesting when they looked at the End2End process, they certainly wanted to improve customer satisfaction and EBIT, which were 2 of the big goals. And in that exercise, they began to understand, again, with a deep marketing approach, what solutions and software features customers valued and maybe which they didn't value or take for granted. And then began to structure the whole offering in the catalog with software bundles and other items that would allow them to achieve more revenue or more value capture from customers and move through that process quite quickly, as well as did some tweaks with the back-end of their process.

Down at the bottom, Interventional X-Ray, again, addressing the entire process. But in the end, it turned out much of the value was an improved configuration and a better catalog offering, which will allow us to offer something to customers that will allow for better price realization. So as I said, some of the End2End projects are going to result in cost and cycle time improvements, some because we're kind of going back to older products and doing better product definition that should have been done first, is helping to capture more value in that regard.

Now supporting, I should say, the last one I'll mention is the One Event Management System because it's a nice tie-in. It's a project we started last year in services, again, using salesforce.com as our first cloud-based solution. So we're using their service cloud. Now with the CRM system also using salesforce, we're now going to have all of our customer-facing employees sharing databases that allow us to see a 360-degree review of the customer. And that is going to be massive because of the ability to now manage the customer in a comprehensive process, particularly as they look across businesses to buy solutions from Philips. And in the area of services, it's to accelerate our time to fix any issues, which is part of our customer satisfaction drive. And that will improve the use of both labor and parts in the service organization. And so we've already gone live here in North America and rolling out to the rest of the world starting in May, again, with a harmonized approach and a harmonized process but on the cloud.

Now underlying all this, Frans talked about the need for a growth in performance culture, you've heard this before. So as an organization, we are very customer focused. And when you look at the statement that Deborah showed you in Healthcare, that's something we have lived every day for many years and we carry throughout the organization. We are innovative. And Frans showed you some product examples, but we're innovating in the area of public-private partnerships, new business models on how we go-to-market. And that's also an important solution that customers are looking for.

We inspire. That's not just for our leaders, but do we inspire customers. The conversations we're having with customers about what's possible and how we create these new sustainable healthcare systems are very inspirational when you sit down and talk to people who want to hear from Philips about our view of how to do that and where we can add value. And that feeds back through our innovation process. And it's very, very exciting to be part of those conversations, I can tell you.

And then lastly, operationally excellent needs to underpin all of this. As I mentioned, I don't know that we need to be world-class in every function, but we better be top quartile at least in every part of our process. And the ones we choose to be best-in-class in, such as marketing, we will do that.

So I think to reinforce this new culture, we've aligned Deborah's objectives down through the entire organization, top to bottom, not just to executives, but going very deep, as I mentioned, not rewarding people for activity anymore, but for specific results and accomplishments that tie to the things we want to get done this year.

We still have line-of-sight accountability for financial performance. And as Ron said, with the LTI program looking at a 3-year TSR is one of the elements. That's a big move for us and I think a very important one as people start to digest what that means for them in their pay. We are doing frequent organizational pulse checks to track adoption of these new behaviors that we've rolled out. And then as we said, 72% of leaders trained in the Accelerate Leadership Program, which was introduced by Frans and the exco to all of us last year. And it's been a fantastic, and I would say transformative program for all of us. As I said earlier, to become more collegial, more collaborative, more challenging, means to others you had to unfreeze the old relationships that existed in our old nature structure. And I think we've done that and we're cascading that down through the organization. So this is a very, very important part of getting people to work together and to work much faster than they have in the past.

So I think I've hopefully convinced you today that the Accelerate! program is comprehensive across all businesses, all markets, that it starts with a deep understanding of the customer. And everybody needs to understand the customer, particularly marketing. And then flowing through the entire value chain. We make the right changes to our organizational setup and find the efficiencies we want to have whether it be in better pricing, better asset management, better service, what have you. We create more accountability in this new culture. And speed is the word. Speed and lean are the 2 words you want to leave here with an understanding. And I think we're very excited about approaching problems in a different way than we have in the past. And then lastly, all these stuff together along with other things that are going on you've heard about today will help us continue to improve the margins for the business, asset utilization and working capital, and help deliver on the Path-to-Value.

Thank you very much.

Now let me bring Deborah back up here who's going to introduce another person and we'll move to Q&A.

Deborah DiSanzo

Thank you, Greg. So we're going to move to Q&A now. Ingo's going to come up and Steve Laczynski, who is the President of North America, is also going to come up for this round of Q&A, anticipating that Ingo had spoke a lot about North America and you may have specific questions about North America. So we'll open it up to questions.

Olivier Esnou - Exane BNP Paribas, Research Division

Olivier Esnou, Exane BNP. Can you talk about the project pipeline this year? You mentioned in your presentation, there were 60 new products in 2012, of which 20 were in the Value segment. What is this number for 2013? That's my first question. Secondly, in Healthcare, if I look at the R&D development, it's been going up a lot, more than doubling over the last few years. How should we model that going forward from the current level? And the third question, maybe on restructuring, I think Ingo said that the charge would be only a fraction this year of what it was last year. So if we think about the Accelerate! program now for the next 5 years, I mean, we know approximately for Lighting, it's sort of a run rate. How should we think about run rate for Healthcare restructuring?

Deborah DiSanzo

Okay, very good. I'll take the first 2 and then Ingo will take the third. The afternoon session with Gene and Mike and Brent, they are all going to talk about their innovation funnel. We've had a lot of innovations over the past 3 years and we'll settle around the rate that maybe we'll still be extremely innovative. We cannot promise that it will be 50 to 60 every, every year. And I haven't added them up for this year, actually, but Mike and Gene and Brent are going to go through. The number is not so important as to the innovations that we make. And so very important are the innovations in the areas that we talked about and those that they'll talk about in their modalities, as well as the value services. We've kept our R&D steady, about an 8% level of sales. And I think we would continue that going forward. And, Ingo, restructuring?

Ingo Bank

Yes, thank you, Deborah. So yes, in 2012, we took a fairly large restructuring charge of EUR 160 million. I expect it to be only a very much low fraction this year. Going forward, I don't think we disclose what we expect from the restructuring going forward. However, to think about that maybe as if you look at the footprint of Healthcare, it's slightly different to that of Lighting from a manufacturing perspective. We have mostly assembly and testing facilities that we would expect also to carry forward. We will see some shifts from high to low-cost manufacturing that I explained as well, so there will be probably in the next coming years where we'll do slightly more than what we will do this year, but I do not expect any major restructuring program on the short term for us.

Deborah DiSanzo

Okay. Martin [ph]. We need a mic, though.

The man in the back has the mic, so we're going to...

Fredric Stahl - UBS Investment Bank, Research Division

Fredric Stahl, UBS. Can I ask you about Samsung and the other Asians that are entering your markets? How do you view the threat from Samsung in particular and then how do you react to that? That's question number one and two. And then secondly, do you think that this type of fragmentation that we will see over the next few years will trigger consolidation in the markets? And maybe if you can talk about what areas you think are more likely to see consolidation at the latest stage?

Deborah DiSanzo

Very good. I'm going to take the question first. And then I'm going to ask Greg, actually, to talk about Samsung relative to Customer Services, because you're here and you're on. So Samsung, Mindray, they are threats that we have to be aware of and we have to address. How do we address it? Philips is an incredibly innovative company and we're focused on solutions across the continuum of care. I think to help create the future of healthcare and help make sustainable healthcare systems across the world, you really do need to think about the continuum of care. The world is no longer about a particular box, but it is about the solution of which that box sits in and how effectively you make that box work. My background is in software. So we know that if you put software into a critical care unit and you don't bother to redo the workflow of the critical care unit, you get almost no benefit from putting the software in. But the software, combined with the services and the solutions and the consulting that go around that, can reduce your length of stay in a hospital for 4 days to 3 days. Now that is more important to a hospital than a few -- few dollars of savings. And so our reaction to Samsung is know that they're out there, be very vigilant about their moves, continue to focus on our strategy of creating the future of healthcare across the continuum of care, build solutions and ensure that we add value for our customers. Gene, Mike and Brent are going to come up and talk about specific solutions that I think you will see will compete extremely effectively against Asian competitors. And I just want to take this opportunity to remind you about Mindray because I think you've heard me tell this story before. In 2006, I stood here as the head of Patient Monitoring and somebody asked me a question if I was paranoid about Mindray. I said, of course I was paranoid about Mindray, but I was certain that we could also beat them. In Q3 of last year, we became the largest Patient Monitoring company in China. When we started in 2006, we were many basis points away from Mindray. Now what would you like to say about...

Greg Sebasky

Just very briefly because, I mean, I got the question last night, people said, well, why couldn't Samsung just hire our people. Well, of course they could, but our people are not just out there turning screwdrivers, right, carrying instruments around. Most of these people have 4-year degrees. They've been trained in soft skills. They've been working with customers for upwards of 10, 15, 20 years. They're seen as a trusted advisor in terms of helping guide them on new upgrades and process improvements in the organization, so we consider them very valuable. And again, we have an obligation to have them in the right working environment, which is part of the reason I talked about salesforce.com, service cloud and other mobility tools that will give them the best environment to work in. And I think they like being part of the innovation engine for Philips by feeding those ideas back through. So yes, they could pick off certain people in different parts of the world, but I think we'll do our job to continue to retain the best and brightest in that organization.

Deborah DiSanzo

The question on consolidation is an interesting one because you'd have to believe that the Healthcare business is relatively stagnant to drive consolidation. I do not believe that. I think it's tremendously dynamic and transformational. And when you have dynamic, transformational markets, you get a lot of new innovation coming into it. So I would -- there's a lot of innovation yet that can come into the market. We really need to help make sustainable Healthcare solutions. So I think there is opportunity there. It's growing, it's dynamic, it's profitable. Martin [ph]? There's a mic now.

Unknown Analyst

Just a couple of questions on your EBIT bridge. I know you don't give margins by product or by region, but is mix a big positive for your this year? If U.S. imaging is flat with some of these other areas in service and Healthcare and so forth, are going to create a rate, is mix something that we should think about in that margin bridge? And the second one was on currency. Because if we're into an environment with a generally stronger dollar, weaker yen, is that something we'd think about on the slide as well?

Deborah DiSanzo

I'm going to talk a bit about the mix. And then I'm going to have Ingo talk both about the mix and the currencies. So I'll just lead it off. What drove our operational improvement last year was just what was on the slide, and that is driving operational excellence in all of our businesses. So you will always have some effects of mix, but the big driver of that was really getting very serious about driving operational excellence and margin improvement in all of our businesses. And, Ingo, if you wanted to add to that, and then take comments.

Ingo Bank

I mean, you also have to look into some of the markets where we drive local relevance with some of the products we offer. And we have varying degrees of margins across the globe. So from that perspective, overall, if you take the pluses or minus, I don't expect that mix will be substantially so much different than a year ago. From a foreign currency perspective, to get to your second question, obviously, the Japanese yen has depreciated quite significantly as major currencies such as the dollar and the euro. We, of course, hedge transaction exposure. By policy, we do not hedge translation exposure. Next to the revenue base that we have in Japan, involves a fairly large cost base with our service organization that is out there, our sales organization that's out there. And we have a big Home Healthcare organization there actually. It's not 100% natural match, so don't get me wrong here. So we have some exposure from some of the material that we import. And we have some translation exposure, of course, for us. A stronger dollar, in general, is beneficial to us. So depending on where that goes this year, we have to see how that works out for us.

Unknown Analyst

Just maybe one other question. Perhaps I'm reading too much into the bridge, but the slide has -- as you go in right into the middle of the margin rate for this year, is that just an illustration or is that something we should...

Ingo Bank

It's really an illustration. But you read the slide very well.

Deborah DiSanzo

And they in the back, yes.

William Mackie - Berenberg Bank, Research Division

Will Mackie from Berenberg, 3 questions. Firstly, on growth, you've summarized the growth globally for the markets at 3% to 4%. Could you walk through what sort of growth you may see for your business perhaps by business unit, by 1 of the 4 business units over 2013? On the restructuring or cost-savings element of the Accelerate! program, I think last year, there was EUR 470 million or EUR 471 million reported in savings. What proportion of that accrued to the Healthcare business unit and how do you see that developing this year? And lastly, how would you characterize in the marketplace in North America and Europe, which is perhaps weaker than we've seen for a while, what is the competitive behavior and how is that impacting pricing? More importantly, how would you characterize the pricing developments?

Deborah DiSanzo

Very good. So on -- Steve, I'll give you North America. Ingo, I'm going to give you the question that we're not going to answer on what portion of the restructuring was Healthcare. And I will take our growth. We have said and we will continue to say that we'll outgrow the market. So that's at 3% or 4%. We will outgrow it. And we don't disclose it by business group, so we won't do that either. Ingo?

Ingo Bank

That's correct.

Deborah DiSanzo

Yes, so -- okay. And on the restructuring...

Ingo Bank

On the restructuring, like we said before, we don't tell how much is accruing to the sector. I can only say that, obviously, we're now 44% of the revenue of the company, so a big part of Philips. And we, of course, benefit also by the activities taken by our colleagues in the group and at the sectors.

Steve Laczynski

And in the market for North America, with the slowdown in the market, we're seeing the competitors respond very strongly. And we're seeing erosion about 3% to 4%. What we've been able to do is bundle our portfolio, look at the total solution of our portfolio and make sure customers understand what we have to offer in totality from the software, from the equipment and also the services.

Deborah DiSanzo

And Bas is coming up at the -- in this afternoon to talk about Europe. He has quite an extensive presentation. So let's just hold your presentations for Bas' -- your question for Bas' presentation. And then if you still have it, we can address it then. Yes, mic here.

Martin Prozesky - Sanford C. Bernstein & Co., LLC., Research Division

It's Martin Prozesky from Bernstein. Three questions, please. In terms of the salesforce.com implementation, once it's pretty done with the cloud 360 customer view, it sounds like it will be best-in-class. Is that right? And do you -- and how would you compare to your competitors? Do you think you've got a big edge on them in this -- with that implementation? And second, in terms of low-cost country manufacturing, I think the number you gave was something like 13% of overheads now. What's the ultimate upside? Now that you have got 25% of your sales in growth markets, how much more can you move to low-cost countries, so are we going to see more of a footprint shift? So and then lastly, maybe on value brand, I mean, you bought Goldway, I think it was 2007. How has that played into your strategy against Mindray? I thought they became the whole global -- or they manage the global value product. And how does that fit into growth globally? Is that an important theme still? You haven't really spoken about it that much.

Deborah DiSanzo

Okay, excellent. So I'll take the Goldway question last. Greg, you want to take salesforce.com? Also talk about OneEMS. And the middle question, I forgot, Ingo, by the way, for you.

Martin Prozesky - Sanford C. Bernstein & Co., LLC., Research Division

Low-cost country.

Deborah DiSanzo

Low-cost country.

Greg Sebasky

Okay. So in the area of salesforce.com, in order to be favored towards speed, we had some idea about how we wanted the system to work, but we largely try to take something more out-of-the-box, right, with limited configurations so we can get it rolled out quickly across the globe and across all the sectors. So although we have an idea about what best-in-class is, that's certainly not part of the first wave, which is getting something into people's hands that actually works and that they're thrilled to have. Steve?

Steve Laczynski

Yes. And I also think the other benefit is, as Ingo mentioned and Greg mentioned, is that the whole organization, not just Healthcare, but all 3 sectors will be on the same tool, which is critical when you want to do solution selling at the hospital, such as the lighting video that you saw, and other types of B2B and B2C relationships.

Deborah DiSanzo

Low-cost country sourcing.

Ingo Bank

Yes, so on low-cost country sourcing, as you see, we've made quite some progress for us. Low-cost country sourcing is a bit more than just shifting manufacturing from what is perceived to be high rates to low rates. Because what we're actually doing is to create a complete footprint in some of those markets, particularly also on the R&D side of things. We've tripled in the last couple of years, has tripled our investment in R&D engineers in those growth geographies. My colleague, Gene Saragnese, would like to show you how much we've have done in Suzhou to, I think, more than double the production output there. In the meantime, we will continue to do so, but we try to build a complete ecosystem around that, also including a supplier base so that you form an integral perspective, really get to the lowest point of cost that you can possibly have. The speed with which we do that is, to some extent, also a bit determined. And that was one of the learnings of the earthquake in Japan, of course, that in some case, you also need to be careful that you make sure that you have dual sourcing capabilities in some of your critical components that you don't -- you're not subject to these type of risks. And we talked about foreign currency movement, so that is something you also need to take into the equation. So overall, our target is still to move this to 50% over time. But we will do that in the steps that are right for the business. And in the meantime, we will make sure that from an integral perspective, we talk about distribution cost of getting the product from A to B, that make sure that we do that at the lowest possible point. And we also talk a bit about -- one thing about Goldway I would like to say, Goldway is exporting a significant amount of its product outside of China. So not are we -- not just the #1 in China itself, but we also see a significant amount of products being exported now to the rest of the world because of the strength of that product portfolio.

Deborah DiSanzo

You -- I have, with pride, talked about Goldway every year that I've been here. The reason I didn't today is because Mike Mancuso is running that business now. And Mike's going to talk about Goldway in the PCCI presentation, but let me just add on to what Ingo said. Goldway had been extraordinarily successful for us. What it gave us was, at that time, a manufacturing base in China, helped our local sourcing in China. We kept the -- it was a beautiful integration because we kept the organization of Goldway intact and the cost of organization intact. And then what we did was we increased sales and service in China so that we could gain share in China. And then what we did was we increased sales and service outside of China so that we could take those value solutions outside of China. And we are very happy with the development of that, as Ingo said today. And I think Mike is going to talk more about it. I do want to emphasize, though, that our success in China is not simply with Goldway, because it is -- we have in our Patient Monitoring line, more patient monitoring -- monitors than any company on the earth, from the very low end to the very high information systems high-end, and that's what China is buying as well. Yes, in the back.

Fabian Smeets - ING Groep N.V., Research Division

Fabian Smeets from ING. One question on the long-term trends in Healthcare. You said you see one of the trends to improve quality of care at lower cost. And of course, one of the opportunities this gives is to reduce time in the hospital and maybe for you, up-selling some products. On the other end, you can also maybe expect this cost reduction to have an impact on pricing and margins in the industry. Have you looked at that, what kind of impact that could have?

Deborah DiSanzo

I'm going to take both parts of that question. First, please do not discount the beginning part of it because every conversation that I have with a hospital CEO does not start with give me your CT scanner cheaper. It more starts with how can -- today, it more starts with how can you help me move care effectively from the hospital to the home. When you see the -- downstairs, in the solutions showcase, the Banner Health example, we sat with Banner and we said, how about if we work with you to take your top 5% of your patients that account for 50% of your cost, and how about we help you reduce the cost to care for those patients? Now that is much more value creating for health system than give me a CT machine at a lower cost. And you will see, Banner is putting money into that pilot, as are we, so that we can work on those top 5% of patients that accounts for 50% of costs in the hospital. And it is about caring for those patients better in the hospital, discharging them 1 day or 2 early, managing the transition of their care into the home, and us ensuring that their care in their home is as efficient, as high-quality, as it is in the hospital, so they don't bounce back into readmissions, which is a problem these days. Yes, of course, what is critically important is we cannot ignore the fact that we need value solutions. We need value solutions. In some places, we don't want 128 size CT machine anymore, we need 64 or 32 or 16. And what you will see is Gene and Mike and Brent talk about their value solutions, because it's not taking our current products and just cutting the price. It is providing a new solution that provides better value for what is needed. Sometimes, it's a simpler product. In rural China, you don't need a cheaper product. What you need is a product that is locally relevant for a Tier 2 hospital. And so that's what we're focused on as well.

Ingo Bank

Maybe let me add one thing to that, Deborah. If you look at the United States, cost pressure has been around for a while for hospitals, so it's really nothing new. And when you heard me speaking about sequestration earlier today, that was widely anticipated that, that would happen, so it was not really new to hospital CEOs and CFOs. And as a response, what we've done already in the last few years, we're also taking our technology in Health to simply upgrade the existing equipment in hospitals to do more with the capital that is already there to help them with their CapEx budgets and the transition that they go through right now. We've done that extremely successfully with great solutions that Gene will talk about later this afternoon. So there's many responses to what you were just indicating.

Deborah DiSanzo

And here?

Philip Wilson - Redburn Partners LLP, Research Division

Philip Wilson from Redburn. In the past, you commented that some margins from growth geographies are below those of North America and Europe. Is this still the case? And as with your report, as you invest in growth geographies, will continue to invest, but see better growth. Where do you think margins set in growth geographies relative to North America and Europe?

Deborah DiSanzo


Ingo Bank

Okay. What you see at this point in time that when you talk about growth geographies, you have to take into consideration that, for instance, China is a market where we sell more ICTs than anywhere in the world. We sell highly sophisticated solutions from PCCI in China. We're starting to grow our Home Healthcare business in China. So China is a growth geography, but it's also delivering a very nice bottom line for us in that respect. At the same time, when you do invest into growth geographies, it's also clear that not all the investments become productive from day 1, right? So we see for that reason that because of these investments, that not all of our growth geographies do carry the same margin that some of our mature geographies, which is normal, I think, in any business that you initially invest in because there's going to be some time before you return -- get the return on that investment. Going forward, of course, we expect all of our businesses to contribute to the overall targets that we set ourselves for this year, between 15% and 17% EBITDA. So all of the growth geographies, they're also working on productivity programs in services, in sales. If you think about attachment rates of services, they're very important for any of those geographies to drive profitability up over time. So if you have a mature geography that has a huge install base, and therefore also high service attachment, that is different than working in a growth geography that over time, you build up your install base, you get your services in and also have a margin lift over time. So I cannot give you a time definition for that, but Frans talked early on about like underperformance. I wouldn't call it underperformance, but clearly, they're on the radar screen and they have to contribute over the long term to the margin targets that we have for the whole sector.

Deborah DiSanzo

All right. So with that, I want to thank you very much and I want to -- Abhijit? Introduce Abhijit to...

Abhijit Bhattacharya

We'll now break for lunch. For those of you on the webcast, after launch, we will go to the Solutions Showcase, so we'll be back on the webcast at 2:00 Boston time. So let's take a break now and be back at 2:00 here. And at 1:00, we'll be -- we'll be guided to the Solutions Showcase down. Thanks.


Unknown Executive

Please welcome to the stage, Chief Executive Officer, Healthcare Imaging Systems, Gene Saragnese.

Gene Saragnese

Well, welcome back, everyone. For those on the webcast, welcome back and for those in the room, welcome back from lunch. This is actually my fourth year running in this role and I'm very pleased to be here today to talk to you about the progress we've made and the direction we're taking.

Let's just start off with what are the key elements of what I want to talk to you about. It really starts with we've been on a consistent journey. We've been on a journey to deliver against the strategy that's been really straightforward. It's been really about delivering an outstanding customer experience, a quality customer experience. It's about innovating and delivering integrated solutions that meet the needs of health care today. The last is really around delivering value, both value segment, value to our customers and also value to our shareholders. That's the mission we've been on. We've made some real progress and I'll share that with you. I'm very pleased to say operationally, we've done very well last year, improving our financial performance significantly on a year-over-year basis. And as I stand in front of you, with all the uncertainty in the world today, around imaging and the medical markets, what I can tell you, though, is that imaging plays an essential role in the future of health care, and that this is a good market to be in and a good problem to be solving. So I'm very pleased to be here in front of you. I want to share with you only how we intend to win in this challenging environment.

You've seen this page before, the guiding statement and it's a unifying statement that we all rally around within Philips Healthcare. When I look at this page, it's clear that diagnostic and treatment component of this that imaging plays a critical role, but it's really through the integration across this continuum of care that allows us to differentiate ourselves and provide solutions that no one else in the industry can provide. I'm going to take it into that and explain more about that as we get further into this presentation. There's been a lot of discussion around market and the changes in the markets, so I'm not going to go over those. I'm just trying to give you a little bit of sense of what's happening in the image market. Starting with we see the market at about EUR18 billion and is continuing to grow. We saw a substantial growth in the area of Ultrasound and Diagnostic X-Ray last year. Actually, driven a lot by what we're seeing in the growth geographies. If you think about it, Ultrasound and Diagnostic X-Ray are really a foundation to imaging and the entry point for many of people around the world and health care systems around the world trying to provide access to patients who haven't had access before. Value segment continues to grow. It's by virtue of mix within the world, mix towards more growth geographies and the fact that many, many more people in the world are demanding health care. Of course, we talked about more patients, fundamentally less time and less money per patient, so the business we're in is delivering better outcomes at better economic value. If you look at what people are looking for, it is both accessibility, as well as rapid diagnosis and, as I said before, lower cost. So as we look at overall, where things are going, I'm going to spend a lot of time talking to you about the world that imaging plays in the therapeutic space. Again, we're trying to lower the costs, improve outcomes and minimally invasive procedures play a key role in that activity.

So I've said to you we've been executing against the consistent strategy and the strategy has 3 elements, as I said before. It's really delivering a quality experience for our customers and for their patients. It really is about innovating and delivering value and solving problems in health care today through innovation. The last element is really being productive, both productive within the company and fast within the company but also productive for our customers, delivering greater value for them so that they can, indeed, succeed in this challenging environment. So we're going to talk about a number of these elements, we're going to talk about what our customers are saying about the products, compare what they said 4 years ago. We're going to talk about image-guided therapy and the role it plays and how we're innovating around the procedures. We're going to talk about access to care through the value segments. We'll spend less time on radiology and less time on cardiovascular care. Then we're also going to us talk about what we've been doing operationally to improve the performance of this business.

So let's start with how our customers feel about our products. Look, I started this journey 4 years ago and I believe in my heart, I believe firmly that the basis for everything we do has to revolve around quality. If you buy anything, the reason you buy the second time is because the experience you had with the first. What you're seeing are accolades from our customers through third-party reviewers and reporters; KLAS, MD Buyline, IMV, as well as AuntMinnie. I'm not going to read all these to you but you can see that almost half of these are new as of these last 12 months. So I said, okay, what's new or what's different? We've had a very strong focus on quality and the quality of experience that our customers have had. We have improved the quality of our products across the fleet as measured by some -- a number of key products by about 10% per year the last 3 years, and any new product that comes out must be at least 30% better than the product it replaces. This does a few things for you. One is, it lets your customers see that you are behind them. You will stand behind the products and they do exactly what you said, but it also helps us on the service side, reduces the cost to serve and helps us improve the bottom line of the business. Image-guided interventional therapy, minimal invasive procedures, lower cost, less invasive, better for patients, better for health care. How do you win in this space? Well, it starts with leadership in the interventional X-Ray space in conjunction with leadership and Ultrasound. I think it was mentioned earlier, a product called AlluraClarity. What you're looking at facing the screen to your right is an image made with AlluraClarity. To the left is your traditional image and the image to the right with AlluraClarity is around 73% lower dose and if you look at the image quality, it's equivalent, or I would argue, better. This is a result of taking technology that was developed in CT and bringing it to a real-time environment. This is a really radical new development in the X-Ray space that allow us to not only reduce the dose on the patient but also reduce it on the caregiver. In order to be successful in the interventional space, you have to have a leadership position in Ultrasound. We have been delivering our xMatrix probes now for 3 years and we've been delivering a probe called a transesophageal probe for the last 5. And our competition has really not been able to replicate that technology and that has enabled us to bring together, infuse that information in front of the patient in something we call echo navigation, and it's the act of bringing together ultrasound with real-time X-Ray to allow physicians to do procedures they couldn't do before, such as minimally invasive heart valve replacements. We're also working a type of catheter in our labs because we specialize in miniaturization, working on something called ablation depth monitoring, which allows you to determine -- get real-time feedback on lesser physiology treatments within the heart. So first, it's about a great foundation, second is about integrating that foundation, third is really about pushing it to new spaces. The new spaces you see in front of you represent the future. One is the introduction of robotics into vascular interventions. We're doing that in conjunction with a company called Corindus. We're also developing an MRI-guided linear accelerator for radiation treatment and that's being done in partnership with Elekta. We believe in this space. We lead in this space today, continue to invest and believe this is the foundation. We're continuing to deliver great care into the future.

I mentioned cost pressures. Everybody faces it, our customers face it every day. Yet at the same time, they have to treat more patients. They were asked to increase the quality of care. So we're paying attention to that problem and we're releasing upgrades into our installed base and what you're looking at are breakthrough products that have been in forward production or about to be in forward production. We're making those available back into the installed base. AlluraClarity is a dose-reduction technique I just mentioned on our interventional X-Ray systems. dStream is the technology we introduced about a year and half ago in the MR business that allowed 30% greater throughput and better image quality. And the last one is CTI Dose, which has been available for about 2 years on our CT systems. We've shipped about 1,100 iDoses into the field today and as you look at the opportunity, it represents about 15,000 systems in our installed base. Again, in this environment where there's cost pressures and we're trying to preserve the investments our customers made, at the same time trying to allow them to deliver better care. These are instrumental in making that possible and this is our dedication to our customers in preserving their investments.

I spent a fair amount of time with those in the room and I suspect there's some folks on the webcast, as well, curious as to how we've progressed in the value segment. If you will, I'm going to start you all on the left-hand side of this page -- that would be the right-hand side of this page. We have 35 offerings in the value segment today and that's an increase of 2x over the last 3 years. You've made significant progress in that space. There's 8 new products that are coming in the year 2013. And of those 35 somewhat products that we're shipping today, 25 of those are coming out of either Suzhou or Shenzhen or Pune. So we've made a significant progress. Now I'll show you what we've done in the industrial footprint in just a minute. But I just want to point out that these [indiscernible] balls around the page represents where we are today and represent the ground we still have to make up, if you will, in the area of value segment. What I can tell you is that we are growing rapidly in this space. We do have a very solid offering in the area of CT and Ultrasounds and we have great pipeline available in the DXR, as well as the MR business. If you look at what's coming out, what came out of the last 12 months, ultrasound ClearVue is a value offering within the -- value caller offering within ultrasound. DuraDiagnost, that was designed and developed in India. The diagnostic X-Ray DuraDiagnost system was developed in Suzhou in China. It's a digital X-Ray system. The Multiva is a product that was designed and developed as well in Suzhou. Last one is Access CT. That product actually has a cost position roughly half of its predecessor. So these are really breakthrough platforms in terms of costs that happen to be developed in the Shen Yan facility as well. And not on this page is actually the Ingenuity 1632 Flex, which is another entry in CT into the value segment. So again, we've doubled and doubled the number of offerings, 25 of those products are coming out of our low-cost facilities and our growth areas.

Let me tell you what we've done in the area of footprints. First of all, our R&D resources have tripled in our growth regions. So we've added approximately 1,000 people over the last 3 years in those regions. And as I said before in the prior page, we're not just doing value engineering. We're doing full-blown MPIs in those facilities. These are very capable teams and we're very pleased with the progress that's been made. And if you look at investment, R&D investment as a percent of sales. Today, we have lower level investment as a percent of sales and we have more people working on products than we ever did. So we're innovating more. We've got a great mix around the world in terms of talent and we're lowering our overall cost. If you look in the center, I think this was mentioned before, we've made great progress in the area of SLCC purchasing. And we're on a journey, we'll be at 38% by the end of this year, just about another 2-point improvement this year in low-cost country sourcing.

Now in the third column, I just want you to remember what we've done as an organization. In the beginning of 2010, Suzhou was a dream. The facility in Suzhou was a dream. We're now doing full-blown MPIs in the Suzhou. We are delivering...

[Audio gap]

This year, we'll deliver some 5,000 systems and sub-systems out of Suzhou. We're innovating there, we're reducing cost with what has happened here. Again, this page over the last 4 years just really moved from almost nothing to a very significant footprint that is delivering innovation, delivering products and delivering productivity.

Now for those other webcast you didn't have a chance to see what we showed downstairs. What we showed downstairs was an example, which was EchoNav, and it happens to be the middle on the example on this page. I want to explain to you how we win, why we think we can win, why we think we have an adorable position in this industry. This is really important. I get this question a lot at the lunch table and I'm certain some folks on the webcast are asking the same question. It's fundamentally made up of 3 ingredients: One, differentiating endurable technology. Miniaturization, CT detection, beam forming, digital MR; advanced manufacturing, X-Ray tranducers -- I'm sorry, X-Ray generation and ultrasound transducers. The basis for these product we showed downstairs and I showed a moment ago on the slide, EchoNav, is the integration of ultrasound with X-Ray. The fact is, that we're integrating a probe, which is called a transesophageal probe, which has not been replicated as I've said before, by our competition for 5 years. So over that those years, we've been working on moving to the next level of development, which is the integration around the clinical problem. Again, differentiating durable technology in area of detection, in the area of X-Ray generation, in the area of transducer technology. Advanced image processing. Clarity is all about advanced image processing. These things take many, many years to develop in order to deliver better image quality at lower dose is critical. And last is really about leveraging the global platform taking developments that are happening all around the world, reconfiguring those into products that we can rapidly bring to market. So what's the second element? The second element is partnerships and deep clinical knowledge. The fact of the matter is, our customers know best what has to happen. We have externalized development, and we have many researchers that are co-located with critical sites. And our key opinion leaders are partnering to help us develop those next-generation products. The last one and I'll give you some examples is the active integrating about the clinical problem.

If I make the best X-Ray gear, great, but the fact is, no one can bring together the ultrasound data simultaneously in a 3D manner in front of our customers like we do today. So the examples here, MR-Linac, that's the integration of MR as a means of guiding radiation therapy will be the only means of actually validating that you're depositing radiation in the places you thought you could. You could be more concentrated, you could go to higher doses and a less number of times for a patient to arrive for treatment. So it's a promising area, one that is in research today but promising. I mentioned EchoNav. The other's around the integration of information around Intellispace Portal. And this is really around making information available anyplace, anytime. About 3 years ago, we had 5 different workstations. Today we have one single thin-client solution that's multi-modality, multi-vendor that integrates extraordinarily well with our PACS system and integrates with competitor PACS. Once again, an example of breaking down the barriers and integrating across the organizational boundaries in order to produce a product that our customers indeed want.

Path to value. We've been showing this chart during the course of the day and this is, indeed, the things I talked to you last year about in Column 1 and Column 2. Those things in yellow, value segment designing for cost in the first column. Those things in yellow in the second column carry across into our focus in 2013. Our strategy is clear. It's really about delivering a great experience for our customer, delivering operational excellence, focusing on the innovations that matter in health care today and really leveraging all this to close the gap that we inevitably will close relative to the competition.

So if I step back and say, what are the takeaways? This is where I started. We set forth a very simple strategy. We want our customers to love working with us. We need to innovate around the problems that exist in healthcare today and deliver solutions, not just technology, but solutions. And you look at echo navigator enabling percutaneous valve replacements, treating people that simply could not be treated before. That's innovation directed towards an acute need in health care. Driving our presence in the value segment and driving access to care. And driving value, if you will, for our customers because that's what healthcare needs today. We have been driving operational improvements and those have paid off and I'm very pleased to say we've improved our performance on a year-over-year basis. And again, I stand in front of you and say, hey, is there any other place I'd rather be? And the answer is absolutely not. Imaging plays an instrumental role in the future of health care. It is how we will create the future of health care in conjunction with the rest of what we doing here in Philips. It is an exciting place to be and an exciting time to be here. I thank you very much.

With that, I would like to introduce Mike Mancuso, who's the CEO of the Patient Care & Clinical Informatics business. Mike?

Michael Mancuso

Hi, everyone. Since this is my first Capital Markets Day, so I would like to introduce myself to all of you. I've been with Philips for 4.5 years. I started off as a Business Innovation Unit Manager, BIU Manager, General Manager for Patient Monitoring systems. Patient Monitoring systems was developing and is developing software solutions around monitoring. Essentially, we have products like our central station, you saw the PIIC iX downstairs in the showcase. We do networking. We have done alarm management. We have done telehealth. And we're still doing all of those products. It's a great business unit. It makes -- it's a great business unit. In the 4 years that I've managed Patient Monitoring Systems, it has achieved its financial metrics each year both in revenue growth, margin growth and profitability. So it's a great, great business. Prior to coming to Philips, I was the CEO of several different software companies focused around wireless and video.

Last night at dinner, I took a poll, very unscientific poll of how many people know what PCCI was about. The 4 people I interviewed, some of you are smiling already. So it's a very unscientific poll and if 4 is a representative sample, 25% of you know what PCCI is about and 75% of you do not. If you heard me talk a little bit about, at the showcase, a little bit about what PCCI does, let me repeat it here. PCCI is a software and solutions business. PCCI is a software and solutions business. We build software and solutions for Patient Monitoring, therapeutic care, which includes ventilation, anesthesiology, resuscitation, cardiology, radiology, telehealth, mobility and most importantly, we integrate those solutions into the ecosystem of the hospital, into the EMR. And the reason we win is we do that better than anyone else in the marketplace because we have deep, rich clinical knowledge and experience and we combine that with information technology. Again, we do it better than anyone. No one in the industry can do what PCCI does. If you are a traditional medical device company, you have some of the clinical experience but you don't have the information technology experience. If you are an EMR vendor, you have the EMR information technology but you don't have the deep, rich clinical experience. PCCI is a software and solutions provider.

I have the guiding statement that we've all talked about. We offer solutions across the continuum. I want to talk about 2 solutions. One is in defibrillation. We make defibrillations. We are the leader in defibrillation. And fundamentally, if there is a problem with the patient, essentially we shock and get the normal rhythm back into that patient. But what's important about it is we collect that information and send it on to the hospital. So when that patient hits the cath lab, the hospital already know something about that patient, saving maybe 30 minutes, maybe 45 minutes, saving time and saving lives. That's what we do. In Patient Monitoring, we've talked a little bit about our Patient Monitoring. We have an incredible product line portfolio not only in our premium patient monitors but also in our value segment. Throughout the continuum of care, whether it's in the emergency department, the ICU or step-down units. Downstairs again, you saw some of the technology. Now I have props but I think someone has been using my props throughout the conversation. So this is the MX40. We showed you this before. It's a very cool device. We started shipping last year, 2012. Interestingly enough, it's going to have a little brother, an MX20 maybe. That might be about half the size of this, which will start shipping as well. And of course, you've seen the little sister that will be coming out us well. Incredible devices. But what's mostly important about this is not the footprint, not the hardware, it's that it collects information and sends it through the ecosystem and into the EMR. We are a software and solutions business.

Market trends. Rapidly digitizing health care system. There is no more need for paper or for film. We will end up being in a filmless and paperless environment in the near future. There's a growing need for clinical decision support. Dr. Fasika [ph] downstairs talked about early warning systems regarding software. Clinical decision support allows a physician to use some of our solutions to predict a potential negative event and to take action now before the patient goes south. Continued trend. Access to data, mobility. You saw some of the mobility technology that we have downstairs. No one matches that mobility in monitoring or in looking at PACS pictures. It's unique in the marketplace today. I challenge you to find somebody that has what we have today in mobility. We talked about collecting all this information. We talked about big data and cloud computing and how we can use that data to commercialize it for the benefit of our customers. Today, we already do that in PACS and we already do that in our telehealth. In PACS, we've mentioned this, we have 10 petabytes of data that we can manage. And telehealth, we have over 2 million patient records and we're adding 200,000 patient records per year. Again, we use that in a commercial environment with our customers. We're also evaluating how we can broaden that across the industry so we would start to capture multiple millions of patient data and commercializing that for our customers. And again, we see that -- and this was mentioned before, treating adverse events in a preventive environment as opposed to -- in wellness as opposed to adverse events.

I'd like to talk to you about our business innovation units. Patient Monitoring. Patient Monitoring, we have 47% market share. And even in a tough environment in 2012, we grew market share 1 point. We have an incredible MX product line. Last year, I know we discussed talking about moving from our MP series to our MX series. We go from the higher acuity area all the way down to telemetry and mobility. Value segment. Value segment, the way I look at it is this kind of a mini PCCI and that we make monitors. We talked about Goldway. Goldway is an incredible asset for us. We sell about 35% of products to the rest of the world. It's been a huge win for us. Not only that, but we're actually looking at maybe putting some other products in the Goldway for manufacturing as well. Enterprise imaging clinical informatics, we're #1 in the market and we'll continue to stay #1. We want to be #1 in that marketplace. Downstairs, somebody asked me, well somebody else can go do that, all they have to do is just figure out what you've done and replace it. They probably could if they wanted to spend the next 10 to 12 years developing our PACS system the way we have done it. And our PACS system has IP. Everything you saw downstairs in our solution set had IP. Therapeutic care, we are #1 in AED. We shipped in 2012 our 1 millionth AED. And we continue to be the leaders in that with 40% market share. In mother and child, we're #1 in fetal monitoring. Fetal monitoring is part of our mother and child business, we have a special focus on it. And it's interesting to note that some of our lighting solutions also come into play with fetal monitoring in warming and also some light technology as well. Clinical innovation that matters, both pervasive, wireless and connected. Again in Patient Monitoring, from high acuity areas to handheld monitoring and mobility monitoring, we have over 190 million patients that are monitored each year and growing. From a wireless standpoint, we have our first mobile caregiver, which actually you can buy on iTunes. And connected. We talked about our IntelliBridge product. This product replaces 20 to 30 different devices or interfaces that our customer needs if they want to start connecting devices within a hospital. They can get it down from 20 to 30, to 2 or 3 or even 1 in many cases, depending upon the volume of data that's going through that. That is an incredible win for hospitals. Clinical informatics. Again, I mentioned we're #1 in cardiology informatics. We store 390 million image studies on a worldwide basis. We continue to commercialize that as well, 10 petabytes of Philips-generated information. We have the database of over 2 million patient records from our telehealth business. And again, we monitor, remotely monitor more than 12% of the ICU beds in the U.S. today. A couple of industry design awards. We showed some of these in previous presentations, AuntMinnie, Buyline, M.D. class. We are recognized as the leader in monitoring therapeutic care and cardiology and radiology. No one is better than Philips at providing software and solutions in these market places. We also are listed as #4 for the second year in a row at Healthcare Informatics IT magazine as well.

The value segment. We're very strong in the value segment. We have delivered on all of our commitments in Patient Monitoring in the value area, ventilators and defibrillators in mother and child, a little bit more room for us to grow. Mostly in warmers, mostly in incubation, which is where we want to go. We are #1 in Patient Monitoring in Brazil and we are #1 in Patient Monitoring, the value and the premium segment in China and we are #1 in India. It's interesting that in Brazil, in Clinical Informatics, we actually have a full-fledged EMR solution. We have over 500 very, very satisfied customers. We are a software and solutions provider. Now somebody asked last night at dinner, well, if you're that good at EMR, would you be in the EMR business in the United States? And the answer was, a few years ago, we decided not to become an EMR vendor in North America. What we wanted to do is focus on Patient Monitoring, the integration of all of our solutions into an EMR. So the answer is no.

Why we win. Again, we are the only company in the world that is focused on Patient Monitoring, leading in market share, leading in innovation with good margins. We have the best clinical decision support innovation in the industry today and continue to make investments in that area. Most importantly, we inter-operate everything we do that's connected into the ecosystem of the hospital, that's connected into the EMR. And we work closely with our customers to create a solution. Philips customers trust us to deliver for them.

Progressing on our path. In 2012, we achieved all of what we said we're going to do. The yellow checkmarks again refer to things that we'll continue to do. In 2013, what I want to put your focus on is as we build software and solutions on a local relevant basis, what we'll start evaluating is should we build competency centers in certain parts of the region of the world. So, for example, we may want to, for the competency center in Japan, as we continue to build out our software and solutions in Japan, or we may want to put a competency center in some of the emerging markets that we believe will yield growth.

Key takeaways. If you've heard nothing else, PCCI is a software and solutions business. PCCI is a software and solutions business. We're focused on Patient Monitoring. We're focused on therapeutic care. We're focused on cardiology, radiology, telehealth, mobility. Nobody does what we do. We're different. We're unique. And the reason we're successful is we take deep clinical, rich clinical experience and knowledge, we marry that with information technology and we put that together in a confluence to come up with the software and a solution. We install it. We train our customers how to use it. We provide them support. We provide them with consulting services. We are a software and solutions business. We follow an End2End methodology that was mentioned earlier. And for us, it starts with the customer and we build software and solutions with the customer in mind. We deliver profitable growth, which allows us to invest in more innovation and in more markets.

Thank you very much. I would now like to introduce my colleague, Brent Shafer, who is the CEO of Home Health Solutions.

Brent Shafer

Thank you, Mike. Good news, it stopped snowing. I thought I'd get your attention that way. Thank you for being with us, a pleasure to be here with you and update you this afternoon. And thanks and welcome to those on the webcast. It's particularly a pleasure for me to be here because we had a very good year and we're making great progress on our journey in home health and I'm happy to give you an update on that progress today.

Since we met last year, which seems not so long ago, I have some key messages I want to give you. One is we've been executing on our strategies and commitments. So what we told you last year, we have been doing, been living up to it. We are benefiting from favorable trends, which you've heard about through the day in chronic care, which will continue to provide opportunity in this segment for us for many years to come. And key is our innovation leadership across the full breadth of our solutions continues to be a strong point for us. And I'm very proud to tell you this year in 2012, we delivered 16 new products to market. That with the 9 that we have planned for 2013 will bring to a total of 36 new product launches in a 36-month period so we're very proud of that momentum and we're very optimistic about the opportunity that brings for us in the marketplace. Key in all of that, as you know, is that patient interface or mask opportunity, which is one of our single largest growth opportunities. When I updated you last year, I committed to launches in this category. I wanted to let you know that 2 mask launches were made last year and I'll update you a bit on the progress that we're very optimistic about the uptake on those new products in the growth that will bring to us in the future. And I want to send you a consistent message. We are positioned for consistent and profitable growth in our future.

So a little bit, where do we fit in the spectrum here? Deborah, who told you about our guiding statement and, as you know, we play and are uniquely positioned in Philips health care across the whole continuum of care. You saw the Banner project and the IIC work downstairs. And if you notice there, along the lines and in the video, we're featuring a lot of the home health solutions products. So we are very much a part of this continuum and part of what makes Philips unique in delivering the solutions. Deborah mentioned the 4 million lives we touch with our sleep data solutions, but I want to tell you that HHS on an annual basis actually touches about 16 million lives through our respiratory care and through sleep and through home monitoring, all of the products and solutions we bring to the markets. We have a big impact. We're very much focused on managing chronic conditions. And as you heard, that is so much one of the current themes in what will drive growth in the future. We are about enabling freedom and independence for those who are affected with chronic conditions in keeping patients where they want to be. And that's at home. At home with loved ones, with family, who make us a much more positive environment.

What I'd like to do now is just share with you a short video about Mark Junge, who is an O2 patient, an oxygen patient. Mark had blood clots with damage -- which had damaged his lungs. And he's just a very energetic guy we got to know who wanted a chance to speak out and show what's possible, what you can still do even with limitations. And he happens to use one of our products. So I think this is a good glimpse of what we're about.

If could can roll the video of Mark, please.


Brent Shafer

Pretty motivational. That's what we're about. And by the way, SimplyGo is one of the key launches that we introduced in 2012 that's been a real hit in the market. We're very proud of that and very, very pleased to be associated with people like Mark.

So let's talk about the global market trends and some of these are consistent with what you've heard through the day today. Chronic disease, you know, is a recurring theme. Key about chronic disease is it really equals lifelong care, that's what it means. So 2 examples that stand out for us and highly relevant to our business is COPD. And as we updated you last year, just last year, COPD was recognized as the fourth leading cause of death worldwide. So this is important to us. We are positioned with our respiratory care portfolio, ventilation, oxygen, portable oxygen, respiratory drug delivery, all play around COPD chronic conditions. So that's key for us and you can see that that's a growth category with high needs there. Obstructive Sleep Apnea. Of course with our core Sleep business, Sleep Apnea is the driver of that business. And just a few statistics out there and I know you've seen a lot of these but it's estimated about 4% of men, 2% of women around the world have OSA syndrome and 80% of those are still undiagnosed. So this is an area that is growing very fast and all indications that it will grow very fast and all indications are that it will grow very fast for years to come in terms of the incidents. So it creates opportunity for us with our Sleep portfolio. These demands in chronic care create opportunity across our portfolio. Aging is another category and we talked about this phenomenon today, global aging. And you'll hear some specific comments from Danny Risberg about Japan, which is certainly a standout example of that. But as we age, we have more demand for home care. So some statistics there, by 2050, it's estimated worldwide the age of 65-plus population will triple to about 1.5 billion globally. And another index in 2010, 40% of the people in the United States that were 65 and older lived alone. And why that's important is, if you're isolated and you have chronic conditions and you live alone, you're likely to have higher mortality from chronic disease. So finding solutions, finding ways to stay engaged, finding ways to monitoring the home are key. So we're very well positioned there with our home monitoring and lifeline offerings, which I'll update you on shortly.

So I wanted to, again, hit the theme of delivering on our commitments. 16 new launches last year was a record year for us. In the key new mask will help us return to growth, it did help us return to growth in the PI portfolio in the second half. Important is the second mask was launched with only 2 weeks to go at the end of the year, so we're just getting started with that second mask launch and I'll tell you more about that in a minute. Globalization and focus on growth geographies is a continued focus for us. This has been a multi-year strategy and we are executing on that strategy and seeing very high rates of growth, double-digit growth outside North America. A few standouts will be mentioned, but I want to tell you that Asia Pacific and EMEA, generally, are growing double digits for us. Very strong growth. And we continue to maintain strong leadership positions in sleep diagnostics, sleep therapy, ventilation, nebulizers and in our North America home monitoring business.

Overall -- this is an update of the market segment I gave you last year. Overall, we continue to play in what is now a EUR5.3 billion market opportunity in Euros growing in the mid-to-high single digits. So very strong healthy markets with good growth outlook. In Sleep, we continue to be #1 in sleep therapy. As I mentioned, there are many undiagnosed patients worldwide. There are significant co-morbidities associated with this so the demand will stay high. And the patient interface opportunity still remains one of our largest opportunities that are about EUR800 million worldwide in which we still hold a relatively small share position. And new products and growth that we get in that segment are all upside for us. In this replenishment and optimization or the concept of resupply, servicing the installed base particularly in North America is a particularly important concept and I'll talk more about that shortly.

Respiratory care. We have a strong #1 market position globally. Very strong position in global ventilation. We see a lot of innovation opportunities in this category as it grows. A good example of that is our launch of CoughAssist, which was brought out right in the fourth quarter of last year. It was featured downstairs. I don't know if you got a chance to see it, but really an outstanding product that improves quality of life for those affected with muscular dystrophy and other -- cystic fibrosis, other folks who are relying on systems to clear their airway passages.

Home monitoring, we continue to be #1 in North America in our home monitoring business, particularly strong in our lifeline or telecare offering. We see this opportunity growing with the aging population and we have expanded in the last year with this offering into Japan. And you'll hear an update from Danny this afternoon, but we're seeing strong uptake and a good growth opportunity in our telecare offering. And with the aging population and the dynamics you'll hear about, we see this is a very positive opportunity for us over the long term. And we will expand our market opportunity here in North America with the launch of our GoSafe offering in the second half, which I'll describe shortly.

International expansion. I talked briefly about this. Again, we're seeing double-digit growth outside North America. Strong, a very strong growth in Japan, China, DACH. And we see continued opportunity for that growth. France and LatAm are examples of where we've seen good growth, but we see even more potential there. So we're very well positioned outside the United States. And we're investing for growth in local value creation. And so one of the -- I just wanted to highlight to you some of the work we're doing in China, which we've seen very good growth in China for multiple years now. But we opened last year, 25 sleep centers. These sleep centers are really a solution center where you can come in, be diagnosed, be set up with CPAP, in a mask, and really have a whole Philips experience around our offering. It's great for identity, it helps new users out there and get them started. We have 25 centers up and running and we plan to expand that by 40 in 2013, so we're excited about that opportunity.

Our masks, I mentioned to you the key launches that we have made in the mask category. We did return to growth in 2012 in the second half. Key in that was the launch of our Amara mask. This serves the full face segment. This is a very important launch for us and really our first realization of the investment we've made in this category and really quite a different approach to our R&D and product development. We have 2 more new masks coming in 2013, so this is key. These masks worked in conjunction with our resupply offerings, EncoreAnywhere and medSage. So we're doing some unique things there around a program we call Fit for Life. So basically, there are opportunities for providers to buy this mask, our product, and get access to resupply through EncoreAnywhere and medSage for free, which is quite an economic driver and a source of efficiency for our customers. So we're excited about that.

Sleep therapy solutions. This is taking that concept a bit further. Core in this is the device itself, the mask, but even more. So in 2012, we delivered on our commitment to enhance our core platform in System One. We did that by delivering the heated tube and other platform enhancements that really improve patient comfort. We have also really focused on an integrated solution as making that a unique differentiator for us in the marketplace. So you think about this System One, the therapy device, the new masks, which are greatly improved, the resupply engine and then a new element, which is SleepMapper. What this does when working together, they help reduce costs, they helped improve compliance and they help engage patients. So in addition to what I described now, let me just tell you a little bit about SleepMapper. SleepMapper is very unique and is being shown, as we speak, out in Las Vegas at the Med Trade Show and I'm sure it's generating a lot of excitement there. We'll launch this to a full launch in the second quarter. This is an application. It can be done and used on a tablet or on your home computer. And what it does is it helps the patient to get really engaged in their own treatment. So it's a personalized therapy feedback, how you're doing on your therapy. It employs motivational techniques, education, support for information about how well you're doing against your goals. All of this leads to a focus on better compliance and adherence to the therapy. And as Deborah mentioned this morning, this is key, since it is a therapy, if it's not used, it does no benefit. Also for our key customers in North America, compliance and being able to show compliance and effectiveness is a gateway to reimbursement. So in our initial trials with SleepMapper, we've seen really some great impact. First of all, our patients love it, providers love it. And in the initial trial, we've seen an improvement in compliance of about 15%. So we're very encouraged. We think this is going to be a great offering and very complimentary to our solutions approach in the marketplace.

Let me also describe to you a little bit about GoSafe. We -- you know it's through our Lifeline offering in North America. This is a personal emergency response solution, which has really the state-of-the-art fall detection algorithm in it. We've been in this business for a long time and have a very solid core business here. We're launching a new version of this, this year, called GoSafe. It's in the second half. It's really a cellular-based technology that works outside the home, eliminates the need for a landline. And what this does, in a small device, it has a fall detection capability, it has a suite of locating technologies and a two-way cellular voice communication protocol. So what's important about this is it expands our opportunity. Today we serve primarily 80-year-old seniors and up who tend to get this when they're housebound. They'll use it for 3 or 4 years. That's sort of the span of use. What this does is lets us get to a much more active and younger senior, so maybe as much as 10 years younger who still needs access to an emergency service or some support. They can take this with them in the car or around town, take it shopping, stay much more active but still have access to those kinds of services. So we're excited about this. Also, obviously, if you're starting this service at 70 and using it into your 80s, the opportunity for a much longer subscription is part of this equation.

So why do we win? Well, we win in our business by bringing health care home. That is what's truly unique about us in the industry. We really have an unmatched breadth of portfolio across all the segments we serve: sleep, ventilation, oxygen, telecare. We have a deep history in clinical expertise in these areas. And we are very focused on our patients and on our customers and their unique needs and serving them in a way that's appropriate and effective and differentiates us from our competition. We're also fortunate to have the global leverage of Philips as a corporation with a broad international reach, leverage to the industrial footprint. And core in all of this is our very deep history of innovation in home health. We go back 30 years to the origin of many of these categories, really the absolute beginning. So 30-plus years of innovation history and we've really got some great momentum going now in our new product launches.

So regarding our path to value, we've been making good progress. We have lots of opportunities still to continue to improve but good progress. We have been executing on our plans. We have continued to focus on international expansion and the growth that, that brings, profitable growth that it brings. We see opportunity for continued improvement through operational excellence and we will pursue that through Accelerate! We're very, very focused on our patient interface opportunity in executing on these products and services, it remains an outstanding opportunity for us, and delivering on the rich flow of new products that are scheduled for next year.

In conclusion, I just want to say, as I began, we've been making good progress. In HSS, I'll tell you, we have momentum. The organization has momentum. We're executing on our plans. We have strong positions in strong markets that will continue to grow. The trends, the macro trends you've heard about all day, are going to continue to great opportunity for us in this business. And we're delivering on an array of new products. And we're on target with our plans for this year for 9 more new product launches that will bring us to a total of 36 launches in 3 years. We're focused on bringing health care home, that is our charter. Helping those with chronic conditions, helping them to live their very best lives. And focus on the aging, helping them to live with grace and with dignity.

Thank you very much.

Abhijit Bhattacharya

Thank you, Brent. Will have a short break now for 15 minutes and then reassemble here at 3:15 for the final leg of today's Capital Markets Day. So we'll be back -- be back at quarter past 3:00.


Abhijit Bhattacharya

Please welcome to the stage General Manager, Market Japan, Philips Healthcare, Danny Risberg.

Danny Risberg

Hello, everyone. Thank you for the time. My name is Danny Risberg, I'm the General Manager of Market Japan as Franz introduced earlier, currently I also hold the role of the Country Manager and CEO of Japan. I'm going to try to give you a window today to look through and give you a view of what's in Japan, what we're doing, why we do it, how we can be successful. Probably more of a window into maybe what will happen in other areas when you hear and as we talk about some of the aging that's going on. Also, try to give you a short introduction of myself and those on the webcast because it's the first time for me to be here. It's a question I get asked often. In fact last night at dinner, was the first question. And yes, I do speak Japanese. I'm fluent in Japanese. I'm actually 1/2 Japanese on my mother's side. My name Risberg, that comes from my father, he's Swedish. I was born in America. I've lived about half my life in the States, the other half in Japan. And I came to Philips through the acquisition of Respironics. So I was working at Respironics at the time of the acquisition. At that time, I was the Vice President International and I was the CEO of the Japanese organization then as well. And my charter there was really to set up a Home Care business, figure out how to build Home Care in Japan. So I've got a lot of home care experience. I've been in healthcare for about 25 years so I think with that, we've kind of put it together and that's what we'll try to show you to today and how we've been able to build this. We're not in this for a short term, it's a long-term endeavor and that's what I'll try to show you today. Okay?

Some of the takeaways and some of the touch points. Really, Hospital to Home, this whole concept, that solution is a driver to our growth in Japan. It's extremely important for us. I'll touch on some of these points later, but what I call Hyper-aging, you've heard the aging that's going on in the world. In Japan we call it Hyper-aging. We have a very expensive hospital system in Japan, but it's very sophisticated. And the government is looking at this and they see clearly, that healthcare is there to stay, it's needed, the hospitals are there, but home care has a clear role to play and they need to build and grow home care. So at Philips, we -- you've heard all these wonderful innovations and solutions that we have. So what we're doing in Japan, we're taking these solutions, we're working with the market, get some insight, working with the practitioners and the caregivers, to make sure that what we do bring is localized, it's relevant to them, and has meaning for them and their patients. That's really key to make sure that whatever we bring, we don't just bring something without understanding why we're bringing it and how they're going to use it and how it's going to benefit. This ought to be another point today. And then growth, it's really driven by the solutions across the continuum of care, okay? Because we need to play in all these areas that you've heard about and I'll give some examples of why that's so important.

You've seen the slide, and I just want to touch on 2 points in this and one of them, I'm hopeful I don't get too sentimental about it, but it means a lot to me. To be able to be part of an organization that's creating the future of healthcare, it's wonderful to be able to save and help people live a better life. Again, you've got to love that as a business. And for me it's very personal. I know Deborah's story and I only wish we had better solutions for her father when he needed them. I take it personal because it happened to me not through illness, through actually, an accident. And I was brought in the emergency, gone through diagnostics, I was on the table for 9 hours. I was in the ICU for weeks, I went through rehabilitation, took months. And I'm alive today because of that. And it's a story, I don't remember half of it, obviously, because I was knocked out but my wife told me when I woke up, she said, wow, that's a Respironics ventilator you were on. So my own product saved my life and that's -- it does make it personal when it is your life, but it's personal when it could be your family, could be anyone. And I'm very proud to be part of Philips, to be able to bring that back and hopefully, help somebody else. That's my passion. I'm totally dedicated to it and I think that's very important. It's important for me and it's important for our Japanese staff because we like to believe in something.

When we look at the market itself, our opportunity. And there's a lot of opportunity. It's not easy but it is opportunity. And this Hyper-aging that's really -- it's increasing the healthcare spend. The cost is going up as everywhere else in the world. When you're looking at Japan, this Hyper-aging, 23% of the population are 65 or older. And that 23% is hard to acquaint to, so it's really 1 -- right now, it's 1 in every 4. So aging that's happening today in Japan, it's not going to happen, it's happening. By 2025, 1 in every 3 will be 65 or older. So if you think about it in this room, it would be a pretty old room. As we look at that, virtually, everyone in Japan has access to healthcare. And that's important to understand because the issues in Japan are not access. Certain countries and areas, they're working on getting the access to home care or healthcare in general. In Japan, there is access. So our issues are becoming more efficient, it's not to give more access. Right now, the healthcare spends 9.6% of GDP. With that, on a comparison basis, it's much lower than the U.S. or most developed nations. So when we look at that, that's our situation that we have to deal with. It's right in front of us. And the hospital situation, there are clear needs for efficiencies. There are probably too many hospitals, the Japanese government understands that. And as we look at that, what they're doing, they're keeping their number of beds but the number of hospitals are being reduced. So that's what's happening. What that means is really, you're having some consolidation of hospitals. And that's never happened before. So as that's challenging, it's how do these hospitals differentiate, become more efficient? We also have a system where the Japanese medical system was built about 40 years ago after the war. It was very good. It led to this healthcare for everyone in Japan, led to aging and the longevity that we're seeing. But it was acute care system and we clearly need the shift from acute care to a chronic care system. So that's a big challenge, it's a big opportunity.

One of the measures that we see is the length of stay in Japan, it's 17.6 days. So that's 3x longer than in the Netherlands and the U.S. So you can get healthcare if you need it, it just takes a little longer to get out. So we want -- I think we can help there as a company and home care is definitely going to play a bigger role. The hospital system isn't sustainable as is, as more patients come. The government is clearly supporting home care, as I have talked about. And the government did their own survey and this is out on the Ministry of Health, Welfare and Labor, they run the medical system in Japan. It's in Japanese so many people don't know about it. In their own survey of the population, 60% of the Japanese people want home care. It's not Philips saying that, that's the people saying it. And that's very important because it's like anything, if you don't want it, you're not going to do it. And when the Japanese who are saying they want home care, that just -- if we can make the model and deliver, meet their expectations, then it will continue to grow and happen.

Why is this important in Japan? Look at the market size. It's the second largest medical equipment market in the world. You see a little dip in 2011 right there, and that was really from the disasters that struck Japan, earthquake. I wrote the tsunami because that's what really -- the earthquake caused the tsunami, the tsunami caused all the damage, destroyed the nuclear power plant in Fukushima, caused all the problems. You see in 2012, the medical market coming back. So we see this low single-digit no matter what, that's out there. And then when you take the stimulus packages in January of this year, the government has announced more stimulus package. The Japanese fiscal year actually starts in April. So we won't know the details exactly, there's these big amounts that are being put out there. We believe as the stimulus gets added, that will get us to these kind of mid-single digit numbers. And then when you look at that, what's happening in the market size and the trend, in the center, we have, those are Philips sales, Philips Japan, healthcare. This is a healthcare slide here. And you see we're growing. Both our hospital business is growing and our home care business is growing. We're growing faster than the market. Our hospital growth, about 14%. We have our home care growing at 15%, so they're both performing very well, so I think that's given us confidence that what we're doing is right and it's working. The right, we're gaining share at the same time. We're doing that profitably. So it is working. One of the important things is we are a resource and with Accelerate Resource ourselves, the BMC, the business market combination is working. You've heard the businesses most of today. I am speaking from the market end. So that is working. I'm talking about what Japan needs for us to be successful, talking to the businesses, to Gene, to Brent, to Mike and we're getting the support. So we are a resource and that's making a big difference for us. In these gains, when we talk about it, when we look down into the detail, Imaging Systems are gaining and our Home Care business is growing, that's the biggest drivers for our market share gain. What do we do when we do this is the question that many wonder. And I think a lot of people know about Japan at a really high-level. I think the knowledge that we have in Japan that's coming from our market level because as Philips, even in Japan, we know we can't do it ourselves. We don't know it all. So we're really talking to the physicians, collaborating with our customers, with our business partners, making sure we understand what they need. And their goal, obviously, is to take care of people and improve their lives, and we have to help them do that. We also know we have to reduce cost as a minimum. Since the number of patients are increasing, we want to contain the cost and we can't let the quality of care go down. It's healthcare, quality is not a nice to have, it's a must-have. And we, as Philips, to make it sustainable, I know and I'm responsible, I need to grow the business to make sure that we can continue to do this for as far as we can see out into the future. With Philips being over a 120-year old company, I think that's a very long vision, and I'm glad to try to be involved in the next 120 years.

Here's an example of what we're doing in Japan in detail. It's the common Philips technologies, and you hear about all the different products. But in the market, we're not making these products, we're bringing them, we're offering them to the customer base. And I'll give you an example. We talked and I think Brent put up that COPD, it's a huge growing population. It's a very, very difficult disease to manage. Unfortunately, there is no cure. And these patients, they have a respiratory disorder. It happens, maybe they climbed too many stairs, some stress, they can't breathe well, they get excited, they get agitated, next thing you know, they're brought in an ambulance to the ER or their family bring them to the ICU, they can't breathe, there's something wrong. So in the ICU, what happens, they usually put them on a noninvasive ventilator, that's the #1 choice of care for these patients. So we put them on a Philips ventilator because we're #1. So they put them on the mask, they get used to it, they stabilize them. Then they usually go to a ward. For this example, they would go to a respiratory ward. It would be a different Philips product, but it's the same technology. So now they're on another Philips product, getting the same type of therapy, maybe just at night, sometimes in the day, using the mask again. And they're seeing -- for the caregiver, they're saying, wow, we've trained these people. Now I'm confident. When they go to the ward, it's really the same Philips thing. They feel better, it's a little safer because they know -- they are familiar with how the products work with the same mask. For the patient and their family, they're seeing, oh, it's not a completely different thing of care. They didn't staff to start over. They've learned how to use that mask. They're comfortable with that mask. So now when they're going to go home, unfortunately, most of these patients continue to need some type of respiratory support. So that's an example of using these technologies to support the customer, to help them, also to giving encouragement to the family and the patient that they can be cared at home, that they can rely on Philips because they've seen us and that we're there to follow them across that continuum of care. So that's very important in our model. How do you do that? We have to build, obviously, sell, deliver, we'll talk about the infrastructure and stuff, what we're doing in a few more slides. But surely that clinical expertise that Philips brings to the table. In Japan, we have over 100 registered medical technicians. In the U.S., I think they'd be called biomedical engineers. In Japan, you have to have that license. They've been trained, and they are clinically astute. They are experts in the technology and they're working to train the nurses, to train the physicians. And as the patients goes home, they're helping train the family. So for us, we get efficiencies out of that because of the technologies. We get efficiencies out of it because we're managing the customer base for what they do, not by certain products. That's led us to having leading positions. And in this example today, in the Hospital to Home, from the home and hospital ventilation, a leading position, if you take that same concept into sleep, we have leading position. Monitoring, we have leading positions. And that's what's really supporting our business. So that's -- we're very -- we believe in this Home to Hospital, Hospital to Home, how we run, because those chronic patients, they do go back to the hospital, unfortunately. 2/3 of the healthcare practitioners, we did in what's called our heartbeat steady, it's a random, nonselective we -- it's over 100 -- this last study was over 150 customers and they're randomly selected. And they -- in the survey, they indicated that they prefer Philips as their Home to Hospital, or Hospital to Home provider. So for us, I think that shows it's working. Our customers are satisfied. They're confident that they can work with us, partner with us and introduce their patients to us.

How do we deliver these solutions across this continuum? It's really taking the market perspective, what is the value, our market team can add to the value that the business and the corporation globally are bringing to Japan. So we know we have to have training, we have to have all the support that happens in that. And as you do that, working with the caregivers, with our partners, we build trust. And they understand that our goal is to move with the patient. We're not going to train you here and leave. We'll train here; when the patient moves, we'll move with them, we'll train here. So it's really to get that synergy of what we're doing with the patient, with support of our customers and their efforts. And what that does, it really expands what we're doing and what we're offering as a company. The value-added that we're bringing the market side. And what that does, we have to have service because once they buy it, it's a huge investment for our customers and our business partners to believe and invest in Philips. So we're dedicated to supporting it all the way through to the end of the life of that product. So we have service support, service checks, safety checks, all that built in to our system that we're offering. We take that Philips, again, the global brand, we make it locally relevant, and that gains that trust that I've been talking about. And in Japan, that trust is paramount. You'll hear all relationship, a lot of bowing in Japan. Well, that's our culture and we need to understand that to be successful and to participate in that market. So building that trust builds loyalty. So we're building that, we believe we can always improve and continue to do better, but I think we're doing very good there. And that trust and loyalty comes and we're really their partner when we're starting to see they believe in our values and they believe in our mission, which is part of what we're here for.

When I look at, again, why we win, I'd say -- I'll start on the right side of the slide for you. In Japanese, we read from the right to the left but it's really because in this End2End infrastructure that we're going to talk about here at a highest level, that's really around our operational excellence. What we've built, the infrastructure that supports all the rest of our efforts. We, Philips, have a 24/7, 365 days a year, no holiday, across the entire nation in support of hospital and home of every product we sell. So we're locally relevant in Hokkaido, the most Northern island, all the way down the country to Okinawa, which is the southernmost small island. So we built this network and the infrastructure for delivery, for service, for support, for local offices. You can't be too far away from a home care patient. Nobody wants to say I need some help, it will take me 5 hours to drive there. That's really unacceptable for many home care patients when they're critically ill. So we built that infrastructure. We've taken this Philips experience globally. We made it locally relevant. We're backing that with the brand. All of medical introductions in Japan that get to the home are driven by the practitioner. Legally, obviously, they need a prescription for the device just like in America. But in Japan, the prescription provider is ultimately responsible for that patient in their clinical care. So we're not offering the clinical care. We're offering the support to allow him to deliver that clinical care.

When we go to the center to make those -- some examples that they are relevant is really what's there. In Imaging, to Gene's point, in our interventional cardiology, that's really science. The peer-to-peer support we get is incredible in Japan. We're doing a wonderful job, and we appreciate the work these Japanese coalitions are doing with us. Sleep awareness, all the way through the therapy and follow-up. The awareness only gets them started but, for an example, we got calls, so many calls, and we helped screen every bus driver in Kobe. We've screened about 40% of the subway drivers in Tokyo. And that drives our business.

In ventilation, it's this acute care, it's the home care and the chronic to be able to deliver the care where they want it, when they want it, where it's appropriate and how they want it. And then we do that on the left, that is through knowledge and local relevance, and that's really beyond just the customer. We're very active in the industry. We are considered a Japanese company in Japan. We're very proud of that. We've been in Japan for over 60 years. We participate in many areas of advocacy. And again, that builds the trust and the localization and the expertise.

Takeaways. Hyper-aging, that's driving the market. It's very expensive. They're looking for solutions that Philips is offering. The government is supporting it. Whatever we do bring that comes from these wonderful Philips innovations, we're making sure they're locally relevant. We're doing it across the continuum of care. And we want to make sure that we do perform. I think we've shown that. We do want to say that we are gaining, we're building our position in Japan through share and our customers are satisfied. That's a quick snapshot.

Thank you very much. And I would now like to introduce a very good friend and a business colleague, Bas Verhoef, who has another market view and the Global President of EMEA. Thank you.

Bas Verhoef

Yes, good afternoon, everybody. My name is Bas Verhoef, and this is also my first Capital Markets Day. And since I'm also a new member of the executive team for Deborah, I would like to take a minute to introduce myself. My passion has always been with healthcare. And before joining Philips Healthcare 16 years ago, I was working at the University of Maastricht, doing hard research and ever since, I've been very passionate about being in the healthcare industry. In those 16 years, I've worked in North America for 5.5 years but I spent the majority of my time working in different markets in Europe. And over time, I developed a dream that at some point, I would love to be leading the European organization. However, a couple of years ago, when I was given the opportunity to lead Europe and my dream became true, I woke up in the middle of the Eurozone crisis. Nevertheless, I still believe I have one of the best and the most exciting jobs in Philips Healthcare, and I would like to share with you in the next 20 minutes why that is.

Let me start with the key takeaways of my presentation. In the past 2 years, we've been able to strengthen our position and gain market share in the declining markets. We have been dealing with the economic headwinds in the past couple of years, but we have also seen in the past year, that in Q3, we were able to grow our order intake by 20%. And in the fourth quarter we, again, were able to grow order intake by 11%. And as a result, we've been able to take market share in a market that was very tough. If you look a bit more long term, demographics will clearly drive demand for affordable healthcare in the future. So although the past couple of years have been quite difficult, the outlook long term is attractive and positive. The other thing that you've been hearing about many times today is the need for solutions. And if you look at the healthcare trends and the industry dynamics, with the aging population and more and more sick people entering the healthcare system, solutions is what it's all about. And what you've heard many times today, it's not just about the products, it's not just about the technology but it's really about being able to address the continuum of care. And if we look at our own future, in Europe, we believe we are very well-positioned for future growth, mainly because we can build on a very large installed base that we've built over almost a century. We have a very strong position in home healthcare. We have a strong base in research and in innovation. And we've built many long-term partnerships over time.

The guiding statement. Let me spend a minute because I'm presenting here on behalf of Europe, to take you a little bit back in history. When Philips was founded in 1891 in Eindhoven, at that time, already the mission of Philips was to improve the quality of people's lives. So already 122 years ago, that was the mission of Philips. And of course, we started with producing light bulbs but already, about 25 years later, we moved into healthcare. In the First World War, doctors were coming to us, to the Philips laboratories in Eindhoven, because they had x-ray tubes and they wanted them to be repaired. They could not take them back to Germany at that time, so they asked us if we could help them. So we started repairing x-ray tubes, but after a while, we started developing our own x-ray tubes. And in 1925, we developed our own first portable x-ray system with radiation protection. And that was actually a system that we put into -- take into people's homes. So already in 1925, we were delivering care already to the home and to the hospital. And we've done so ever since. So the fact that we started already in 1925 with producing x-ray tubes in Europe, means that we have a very strong foundation, a very strong history in Europe. And also means that today, we have a large installed base. But we also have many long-standing customer relationships. We have many field service engineers and sales people that have been with us for over 20 to 30 years. And they've built very strong relationship with our customers over that long period of time.

If you now look at the healthcare trends, they're not so much different than what you've heard today, but let me just share you a couple of trends that we particularly see in Europe. Over the past 20 to 30 years, the status of healthcare has largely improved across Europe. A baby that is born today will live 6 years longer than when the baby was born in 1980. There's a big difference only just in the last 32 years. Also if today, you will end up in a hospital after having a heart attack, the chance of survival is 52% higher than only in 1990. So also there, we see huge progress. At the same time, there's also a lot of challenges. And you've heard it many times today, people are getting older and sicker and we have more and more people entering into the healthcare system. Danny was just talking about, the Hyper-aging in Japan. Japan is the oldest country in the world. Europe is the oldest region in the world, with about 20% of people older than 65. At the same time, we see the impact of lifestyle changes. In Europe, about 52% of the adults is overweight, out of which 17% is obese. And that is also driving again, more people suffering from cardiovascular disease and more people suffering from sleeping disorders.

We also see that there's concerns about the future with regards to the availability of healthcare professionals. In 2020, in Europe, we will have a shortage of about 1 million doctors and nurses in the healthcare system and another study in the Netherlands shows that by 2025, 1 in 4 students leaving school or university should take a job in healthcare, so we will still be able to take care of all the sick people. Today, 10% of all the healthcare -- or all the people help working is a healthcare professional. So that should mean that we go from 10% to 25%. So that clearly shows that the healthcare system, as we know it today, is not sustainable. As a result, we will also see that care will be more and more shifting to the home to deal with the burden on the healthcare system and the healthcare professionals in the hospital. And of course, in Europe, what we've seen in the past years is that many countries have cut or frozen their healthcare budget. And since 73% of all the healthcare spending in Europe is publicly financed, of course, that has had its impact on declining markets in the past couple of years.

So what you see is that the healthcare dynamics has driven demand for innovative solutions. And you see many examples today, but also if you look, for example, at the technology, innovation and for example, the ability to now treat people minimally invasive, that is particularly important with an aging population because it means that we can now still treat people that, otherwise, probably will not be able to survive classic open-heart surgery or other invasive procedures. We also see that, of course, taking care of people in the homes and also monitoring them in the home, so they probably will not be able -- or not go back to the hospital again will be increasingly important. And one of the things that I'll tell you a little bit more about later in this presentation is that we see a growing need for multi-year partnerships with our customers.

And finally, since budgets have been tight over the past couple of years, many customers ask if we can help them with workflow improvement, equipment utilization and somehow help them to make better use of the equipment that they have.

Let me now take you to the markets as we have seen it in 2012 and how our outlook is for 2013. If you look at 2012, the overall market in Europe was clearly not a sea of sames. You see a huge diversity from country to country. Starting with Germany, the economy started to slow down in the middle of 2012. And as a result, we saw that hospitals were delaying their purchasing decision. Another thing that we saw is that the private clinics and the private clinic changed [indiscernible] very much interested in merger and acquisition. They were looking at other hospitals to buy. And that also meant that they delayed their purchasing decisions. On the other hand, if you look at the other countries in the northern part of Europe, we saw a very strong market. In Nordics, in the Benelux, in the U.K. and Ireland, the market was growing, mainly driven by large scale projects and many of those are also driven by large scale projects around IT solutions like the one in the U.K.

In France, the situation was not as challenging as in the rest of the South of Europe, where we saw about low single-digit decline of the markets. But we believe that markets will do a little bit better in 2013 because in France, there is a cap on the number of CT and MR systems that you can have in the country and it has been decided by the 26 health regions that in 2013, that will be elevated. So there's a room for more MR/CT scanners now in France in 2013. If you look at the other countries in 2013, in Germany, we expect that the pent-up demand, because of the delayed decisions in 2012, will have a positive impact on the market in 2013.

In Nordics, the outlook for 2013 is quite stable compared to last year. But that's basically the silence before the storm because we know that in 2013, '14 and '15, there will be many new hospitals being built both in Denmark and in Sweden. In the Benelux, the outlook is overall stable, and we might see some growth that depends on how fast hospitals might be deciding on new large scale projects that we see on the radar screen.

In the U.K. and Ireland, we expect an overall stable market when we see some modest growth in certain opportunities. For example, in interventional x-ray in the U.K. they have the new opportunity fund or the levering money. And that money now will be used to replace cardiovascular systems that were purchased about 9 to 10 years ago. And the same thing holds for defibrillators where there will be a refresh of the millennium purchases 12 years ago.

France, as I said, has a more stable outlook now for 2013 but the rest of the Southern Europe countries will still probably go through a challenging time in 2013.

If you now look how we've done in that challenging market in the past couple of years. Healthcare is a relationship business. Everything starts with the customer. And that's why already in 2010, we started investing and becoming better at customer centricity. So what we did is we aligned our sales and our service teams and we gave them the same objectives, not just on order intake and sales but also on customer satisfaction and really forcing them to drive everything based on customer satisfaction. We made smaller teams. We made them lean. We gave them empowerment to make their own decisions fast, so they didn't need a lot of approvals from managers. And we've seen for the past 4 years, that our customer satisfaction has been improving year after year after year. And we believe that has been one of the foundations of the success in the past couple of years.

The markets were still down 2% last year. However, in 2011, the market was down 10% compared to the previous year. So what you see from minus 10% to minus 2% is that the rate of decline of the European market is really slowing down. And it might suggest actually, that we might have reached the bottom and that the outlook for the next couple of years will be more positive. If you then look at how we did in that market, our order intake last year has grown by about 7%. As you know last year in Q3, we grew 20%; in Q4, we grew 11%. And overall, we've been able to grow our order intake and it was mainly due to our success in those long-term strategic partnerships. However, if you would take them out, we still have grown our business and we still have grown market share in the regular business, excluding those large-scale projects. So as a result, in the past 2 years, we have now 2 consecutive years of market share growth and we've been able to improve our share by 2%.

So why do we win? Again, healthcare is a relationship business and it starts with the customer. So we've been driving very hard to improve our customer satisfaction over the past couple of years and we believe that has been the basis for our success. At the same time, and since we have been such a long time in Europe, we have a very strong large installed base and that has also been helping us, particularly in the South of Europe because they still don't have the recurring revenue. And from this service, we still see customers on a day-to-day basis. And as Gene explained today, having a large installed base also provides you with a lot of opportunities for upgrade business like in CT and NMR. We also have a very strong base in research in Europe. We have over 1,000 employees working at various research facilities and we have research facilities in the U.K., in Germany and in the Netherlands. And over time, we've built very many long-term relationships and research collaborations with customers across Europe.

As Brent was mentioning in his presentation, revenue very well in Home Healthcare across Europe. In DACH and in France but also in Iberia, which otherwise was a very tough market to operate in, where we've been seeing very solid growth in the past year.

And finally, we are convinced that having those long-term partnerships are very important for our future growth and helping our customers to still deliver efficient and affordable healthcare in the years to come. I'd like to tell you a little bit more about that.

If you look at the last years, we've closed over more than 30 of those long-term partnership contracts with our customers across Europe. And if you look at them, it's not just in the northern part of Europe. It's also the South of Europe. We closed many of those long-term partnerships in Spain, but also in Italy, but definitely also in the northern part of Europe. And if you look at them, they're really tailor-made. None of those long-term partnership contracts is the same. But if you go a little bit deeper, you see that they all have the same elements that could be part of such a long-term partnership contract. It can be about consultancy, it can be containing training the employees in the hospital. It can be about guaranteeing access to state-of-the-art technology, maybe for a monthly fee, that they will pay for the next 10 to 15 years, to guarantee that people have access to state-of-the-art. It can be about design. I think we have seen some great examples today. Together, what we can do with our colleagues in health or in lighting. It can be about consultancy. And you really need a deep understanding of the customer needs and really work with them to build those long-term partnerships. Sometimes, it takes 1 to 2 years to actually construct such a partnership contract. A recent example is the contract that we closed last year in [indiscernible], in the Azala Clinics. That was a contract worth EUR 60 million and there, the main goal of the partnership was to start a joint research collaboration together with the hospital.

So again, the key takeaways in the past years, despite the fact that the market was quite challenging, we've been able to strengthen our position in the European market. Long term, we believe that Europe is still a very attractive market, mainly driven by demographics. People are getting older and sicker and there's a growing need for affordable care. We also see that the healthcare industry dynamics are asking for solutions, and we believe that we are very well-positioned by all the things that we can deliver as a company, to help our customers, not just in the hospital, but also from the home to the hospital and the hospital to the home. And finally, I believe we are very well-positioned for future growth in Europe, building our installed base, our long-term partnerships, our strong position in home healthcare and our innovation base.

So thank you for the attention. And with that, I would -- I would like to invite Deborah DiSanzo, our CEO, back to the stage.

Deborah DiSanzo

Bas, thank you very much. And if all the question-and-answer team could come up, we have about 35 minutes worth of Q&A once again.

Deborah DiSanzo

Maybe if we could turn the line lights up so I can see that. Okay. All right. Very good. All right. So what remaining questions do you have for the health care team? Right here. And then we'll go to Martin.

Martin A. Sankey - Neuberger Berman Group LLC

Martin Sankey, Neuberger Berman. In the regions, what is happening in the competitive landscape, particularly Japan? There's capable competitors there, local companies that are -- that have extensive relationships, as well as considerable technical capacities. Could you address what's happening in the competitive landscape and could you -- and the same question for Europe and the Americas.

Deborah DiSanzo

Okay. Very good. So we don't necessarily comment on competitors. But, Danny, could you tell us our strengths in Japan, perhaps, once again?

Danny Risberg

I think -- it's a large market, I think everyone's out there. We are focused on what we're good at, what we deliver. And I think there's no one in Japan that I know doing what we do, related to having the breadth of products and innovation we're bringing. And again, making that as local as relevant as possible as it could be. Because a lot of that doesn't mean it needs to be Japanese. It means it needs to be something that the Japanese patient can benefit from, that the hospital and the physician can benefit from. So I -- that's our differentiation, that's what we do.

Deborah DiSanzo

Bas, for Europe, please?

Bas Verhoef

Again, I think, in Europe, it's very much about those long-standing relationships. We have thousands of engineers. And many of those have been with us for over 20 years. And if you really want to help your customers to find those solutions together and start those partnerships, you can only do that if you have a really deep understanding of their needs. And also, and over time, and those people have become more like trusted advisers. So I believe that is one of the key elements of what we do in Europe and how we try to differentiate ourselves.

Deborah DiSanzo

And Steve Laczynski for the Americas.

Steve Laczynski

It's the same answer for the Americas. North America, clearly, it's customer relationships, as well as a breadth of the portfolio that we represent, primarily in the U.S. and in Canada. Same with Latin America. Latin America also because of our footprint, local footprint in the countries down there across the portfolio, that gives us a very strong position as well.

Deborah DiSanzo

Thank you. All right. Yes? Yes, here.

Unknown Analyst

Just a question on Respironics. I think last year, there was an indication that the mass part of the business had, perhaps, lost a little bit share but the ventilator side was going very well. It sounds that the mass has now recovered. Is that how we should read it? That the underperforming piece has now come to where you expect it to earn, so Respironics is now back on track relative to where you had said last year?

Deborah DiSanzo

I'm going to let Brent particularly answer the mass question. But on Respironics, I want to say what I said last year and we've been saying for the years. In hospital, Respironics has done extraordinarily well for Philips, that's why we're #1 in noninvasive ventilation in the hospital. Children's medical ventures, who also came with Respironics, Mike talked about the focus that we have on Mother & Child Care. That comes from the children medical ventures business that we acquired from Respironics, has done extraordinarily well and ventilation has always done well. It is true that the patient interfaces had been what we had to work on. Brent has done and his team have done a fantastic job and I would like -- let him answer specifically about the patient interfaces.

Brent Shafer

So the second part of the question is are we where we would like to be or where we expect to be. We see huge potential there. So we feel we're just at the beginning stages of that. We've got the 2 mass out the door, 1 just very late in the year. But we're really optimistic based on the traction we've seen around the Amara full-face, which is the largest category. Customers love it. Patients love it. We're very excited about WISP, which came out late in the year and that we have 2 coming this year. So that with some of the solutions that I mentioned, I think, gets us momentum. But we have a long way to go and a lot of opportunity to address there. So that's -- again, that's all upside for us from our current position. Thank you.

Deborah DiSanzo

Okay. Thank you. Yes, right behind you. I think -- yes?

Fredric Stahl - UBS Investment Bank, Research Division

It's Fredric Stahl from UBS. I think you mentioned earlier, I can't remember who it was, but that the average age of equipment, of the equipment base in the U.S. have gone up 2 years over the last couple of years. I was wondering what the average age is of the equipment base.

Deborah DiSanzo

In North America, Steve Laczynski.

Steve Laczynski

Yes, on the average, in the past, customers will hold their equipment for around 7 to 8 years. We've seen additional 2 years now on average across our whole portfolio. So closer to 10 years right now.

Fredric Stahl - UBS Investment Bank, Research Division

Is that sustainable or is it something that will revert back to normal again, you think?

Steve Laczynski

Yes, I would say customers are looking at our service offerings to prolong the life of their equipment. But at the same time, there's such new technologies that have come out, less dosing, higher throughput. So customers now are reaching the tipping point, we believe, where the pent-up demand is going to require them to look at new solutions.

Deborah DiSanzo

Any further? All right. We have 2 now, right.

Unknown Analyst

The strength for partnership, is it just a European phenomenon and -- or do you see that happening across regions? I mean, I remember last year at the Capital Markets Day, the outlook was quite bearish for Europe, and you ended up there very nicely. So did it surprise you the response to that partnership agreement? Do you think that's going to develop more? What's in there for you and what's in there for the customer? Can you elaborate a bit more?

Deborah DiSanzo

Let me talk broadly about the partnerships. And then I'll have Bas talk about how well he managed Europe to ensure that it wasn't -- that we did well. Partnerships, I think last year we presented Southeast Asia, if you recall. And we've also been able to grow in Southeast Asia through partnerships, public, private partnerships, partnerships across the ecosystem that has helped us. I'm sure you, perhaps, had the opportunity to talk to Ian Router [ph], who is here. We, of course, also partner across our BG's. Gene talked about partnerships with Elekta, PCCI, partners with many in the ecosystem so that we provide the clinical informatics solutions. I would say that partnerships are a core part of the Philips Healthcare strategy because if you're going to provide total solutions and not simply boxes but solutions, you need to provide solutions across the ecosystem. So you need to be looking for partners. So it is a broad strategy. And, Bas, maybe just a couple of words on the outcome of Europe?

Bas Verhoef

Yes. The thing that you see is that those partnerships take a long time to really define how you, for example, will be working together for next 10 or 15 years. So and you might remember that awhile ago, one of our first big partnerships was with the Royal Belfast Hospital. But it took us 2 years, actually, to get to the final moment of signing that contract. And it also means that it's not always as predictable when you might be able to finally sign a partnership. Because to go through all the detail, it takes a long time. And it also means that it can, quite easily, it can move out a little bit or it can also move forward. I mean, it's not as predictable when you sell, for example, one system. So it takes, yes, more time than normal, of course, to, yes, go over things together. At the same time, the benefit for the hospital is once you have that partnership, for a very long period of time, it reduces enormously the amount of time they need to spend on every single system that they would like to purchase, where you normally have to go through a whole cycle of selecting vendors and what have you. So it takes a bit more time on the front end but at the same time, for a very long time, 10, 15 years, is a much more, yes, stable business and you know also quite well what it will mean for your finance in the hospital. And because in many cases, having a fixed monthly or yearly fee that we ask the customers to pay for the next 10 or 15 years.

Deborah DiSanzo

And there's a question here.

Philip Wilson - Redburn Partners LLP, Research Division

Philip Wilson from Redburn. A question on PCCI. You say you now have the highest margins in the industry. Can you say who you're benchmarking against there specifically? That's the first question. And secondly, do you think margins now have reached a level that -- in PCCI, or do you still think you can see further margin expansion relative to your peers?

Deborah DiSanzo

So I will let Mike answer that, but just a little highlight from me. I think we said industry benchmarks looking not only across health care vendors but broadly vendors and what we see in lean manufacturing and manufacturing operations, operational excellence, which we're referring to. And, Mike?

Michael Mancuso

Yes. So I won't get into specific competitors but you know who we compete against. So I'll leave it up to you to kind of figure that all out, number one. To your second point, we talked a little bit about End2End. We talked a little bit about projects that we're working on, improvement of Bill of Materials, helping to continue to improve margins. So as good as I think we are, there's always room for improvement. So the whole End2End process, as Frans had mentioned in his speech, has led us to understand and find out unexpected nuggets of savings and we continue to push on that.

Deborah DiSanzo

Are we winding down? Okay. Very good.

Unknown Analyst

Could you speak to the proportion of health care revenues that are derived from services and other consumable types of revenues? And is there a strategy to try to move into product areas within the health care sphere that would have a considerable or consumable content in order to improve profit margins and stable -- and perhaps stabilize the business over business cycles?

Deborah DiSanzo

In the back of your book -- in the book, in my presentation where you -- where we have the health care team, on the bottom, I believe we list the percentage of revenue from...

[Audio Gap]

in some of those business. It also it is in the PCCI business. It enjoys -- it is a profitable business. But that is not the only way to get a recurring revenue stream. In fact, consulting services provides a recurring revenue stream. In fact, selling software as a service provides a recurrable revenue stream. Of course, service contracts, service contracts on our software, on our Patient Monitoring solutions, service contracts on our Imaging Solutions, provides a sustainable revenue stream. So I think that you won't see us focus more on consumables than we are focused today, the consumables that go with our solutions and most of that's in PCCI. But you do see us expanding our software, our services and our consulting offerings.

Bas Verhoef

Can you go to the mic, please? Because it's very difficult to hear.

Unknown Analyst

Is there a target to move recurring revenues to a certain percentage of the sales pipe?

Deborah DiSanzo

There is a target to increase our consulting services business, to increase our revenues from software and consulting, to increase our solutions from Hospital to Home, and to increase our Customer Service. Not specifically looking at them as a recurring revenue source but looking at them as how do we create the future of health care and participate in the transformation of the health care systems.

Bas Verhoef

And in addition, if I may add to that. If you think about the share that we're building in the growth geographies, right now our plans have not always do we have already a large installed base in some of these geographies, you'll see that over time with the attachment rates of service contracts, that the degree of service revenue will increase for us also in these geographies. And then you have recurring revenue with the potential of upgrades, et cetera, also in these geographies. So that will be a stream for both growth going forward for us and also for profit improvement in those geographies.

Deborah DiSanzo

In the back. Thank you.

Unknown Analyst

Can we go back to a financial question with regard to working capital? You mentioned earlier that you felt that there was opportunity to take further working capital out of the business. I'm not sure -- you then elaborated on how much further you could drive down inventories or debtors and creditors. So perhaps just widen that. And then secondly, coming back to some initiatives for growth. In Japan you mentioned stimulus with budget funds being released from April. Perhaps, could you throw some more color on which parts of the health care spectrum you expect that money to fall and whether it directly relates to Philips' business? And then lastly, with regard to the Patient Care and Affordable Care Act in North America. Can you just update us on what you think the adherence to that is at the moment with regard to states taking up the Act and hence bringing the 30 million patients you mentioned into the pool?

Deborah DiSanzo

Very good. So Ingo will take the working capital question. Danny will take the Japan question. And perhaps Greg will take the Affordable Care Act. Greg and Steve, you can tag team on the Affordable Care Act question.

Ingo Bank

Who goes first?

Deborah DiSanzo

You can go first, Ingo.

Ingo Bank

Okay. That was a good observation that I didn't mention. Anything about saying that we see further improvements of working capital going forward, I think that we started a good run on managing our inventories further down. So I expect that to further improve going forward. We have internal targets. Everybody knows what these targets are. And I'm sure that we will achieve those. We've been continuously working with a supplier financing program to drive our accounts payable up basically. And it helps, obviously, our working capital as well. And at the same time, on the accounts receivable front, we've been working predominantly in the last year -- or 18 months, I should say, the risk profile of these accounts receivables. Because, obviously, if you're engaged in a number of geographies that face increased credit risk, it was very important for us that we spend our time on making sure we managed that credit well. And we've done so. We've worked on all our dues, obviously. But the focus was really for now, on the risk management side. So once the risks returns possibly over time to normal levels, I could also see us doing better from an accounts receivable point of view.

Deborah DiSanzo

Thank you. Danny?

Danny Risberg

Relating to the stimulus, we know in January the current [indiscernible] administration received approval from the parliament to the diet that approved the large picture of what they'd want to do. When it will be released, I think we'll further see that being divvied up. Honestly, we don't know. The only thing that's clear that's been announced right now related, that we can see, there will be about EUR 60 million released for, what they're saying, medical research. That will come from April, supposed to be spent by next May. And when we look at that, we believe that will go out to probably 10 research institutions. If that gets to where we believe and hopefully should see some Imaging Systems opportunity there. But other than that, until they really get it out there and start deciding, it's almost impossible to tell. We just know that something's coming. In Japan, also when those budgets come out in the hospital system, part of it is administrated by the Ministry of Health and Welfare. So they put out some numbers of what they're targeting. The other part goes to the Ministry of Education, who runs the universities and the university hospitals. So until we get farther up, we probably won't know any detail, probably until the summer later in the year. So we'll see a definite number maybe in April. We'll see some of that dividing out towards the summer and then we'll just have to push and act on it. I think we're prepared to do that. We're out there. But I wouldn't -- we don't, and I would hate to speculate, but I think we will see positive. But where it comes, we'll have to wait and see.

Deborah DiSanzo

Thank you, Danny. And Steve, Greg?

Greg Sebasky

Start with the Affordable Care Act. So all provisions are going into plays as scheduled, except for the coverage of the 4 patients under the Medicaid program, which the Supreme Court allowed the states to make their own decision. I can get you updated data as of last week, I think we have 27 of 50 states decide to participate. And many of the big ones, like Arizona and Florida, were coming in. Texas decided not to. So that's a big number. But even in been the case where the people aren't going to be covered by their state, there's still the process going on to settle the health insurance exchanges which will be available to offer low-cost plans to the poor, if they're not covered through the Medicaid program. So we can continue to update those numbers for you in terms of how many millions of people come in to the system. That was a really important part of the program, Steve, from the standpoint of the hospitals needing to see those additional patients coming through the system.

Steve Laczynski

Right. And also we have seen the uptake of the accountable care organizations, or the ACOs. I think we mentioned it in a few slides, where these formations of these organizations are occurring and they're looking at a bundle payment for the episode of care and you're rapidly seeing the development and the growth of the registration of these accountable care organizations throughout the United States.

Deborah DiSanzo

Thank you. Are we to the end? No, we're not to the end.

Unknown Analyst

Just a follow-up on North America. You talked about sort of flattish growth. I'd guess just a question for over the next 1 to 2 years. What do you see the impact of sort of almost coming to the end of the Meaningful Use sort of electronic health medical records, in terms of hospitals have said for a while a lot of their budgets have been, in terms of CapEx, have been shifted towards spending on sort of IT? And as that sort of Meaningful Use is largely completed, despite CapEx budgets being sort of flattish, it can be sort of a rejigging or reallocation of that CapEx towards other things, such as building the hospitals or new beds or new equipments. Sort of what would your take be on that, in terms of the reallocation of the CapEx budgets once the -- as the Obama Meaningful Use sort of comes to an end?

Deborah DiSanzo

Why don't I take the beginning of Meaningful Use. And then I'll turn it over to Steve Laczynski to take the CapEx question. So Meaningful Use is yet just at its beginning. In fact, the health care institutions who will get the benefits, start getting the benefits in 2014 and the benefits run into 2016. While the largest health care institutions have electronic health records and will likely start seeing those benefits, still, there are medium and small hospitals that have yet to fully put in electronic health systems and will have yet -- not yet seen the benefits of it. So Meaningful Use is not coming to an end. In fact, we've just got Meaningful Use guidelines #2 out, #3 is coming later yet. And as we get physicians to be more meaningful users, the more Meaningful Users physicians get, that is very good for Philips because that is our clinical decision support strategy that we have had an we have been talking about since 2006, 2007. And we fit into that paying for better outcomes. So that is going to help us. And we don't see that coming to an end, particularly soon. But, Steve, maybe add on to CapEx discussion.

Steve Laczynski

Yes. No, for CapEx, you're spot on. We're still seeing flat to slightly a small increase but still majority or a good portion. And I've seen anywhere from 30% to 40%, depending on which report I quote. 30% to 40% is still being driven towards electronic medical records to get those organizations towards Meaningful Use. And as that happens, again, it helps our PCCI business because customers at the same time want to upgrade their monitors or devices, those tools that surround the bedside. And at the same time, help build on clinical decision-support.

Deborah DiSanzo

All right. Very good. One more question in the back then.

Unknown Analyst

One of the key components of the group's strategy has been portfolio. I don't think we've talked too much about that, but perhaps you could just walk through what sort of pipeline you have of potential inorganic moves as and when the time is right or the capital becomes available. And conversely, as you look across the portfolio, to what extent do you find underperformers that could also be weeded out?

Deborah DiSanzo

We are following in a good strategy of portfolio and ours is driven very strongly by our head of our strategy and innovation. As Ron indicated, if we do any merger and acquisition activity, it will be on strategic bolt-ons. And they will be relatively small in nature. We are looking -- we started looking at our portfolio very carefully during our -- what we are now calling our strategic deep dives, where we have a new strategy planning process, which we take deep dives, very deep dives into the business and analyze many more things than we did in the past, including the portfolio. That leads us to someplace where we say the business is -- you are not at the level of profitability that you need to be at. Here's what you need to get to be at. And we will continue to drive that very hard. Specifically, what businesses those are, I won't disclose. But we are managing it very strongly at this moment and following in what both Frans said about portfolio management and Ron said in bolt-on M&A.

Deborah DiSanzo

So thank you very much, team. And we will come into the end.

Thank you for staying with us. Thank you for staying with us on the webcast. So if there are 4 things that I want you to remember about today, these are the 4 things that I would like you to remember. We will have a slow start of the first half of 2013, but we are on track to meet our 2013 targets. These innovations will create the future of health care, fit into the changing dynamics of the growing profitable health care industry and will drive profitable growth for Philips Healthcare. NIS, image-guided interventions, and value solutions and PCCI, total Patient Monitoring solutions that are now in informatics solution and integrates seamlessly into the rest of the IT infrastructure. In HHS, our beautiful new patient interfaces, our compliance services and all underpinned by clinical integration and consulting services.

By the way, we had asked the question and I counted out, so it's 15 new innovations for this year in 2013 that we'll be releasing.

Any successful transformation, as Frans said this morning, we have studied companies that have gone through successful transformation. Any successful transformation takes focus, it takes passion by the leadership team. We have focus. We have a lot of passion. We need patience because, as Frans indicated, it does not happen in 1, 2 or 3 years. The transformations are multiyear. And you have a dynamic transformational leader and I hope you join me in recognizing that we could not be better than Greg Sebasky in driving our transformation. I want you to know that we are faster, we are more focused and we are driving profitable growth.

This is my slide for this year. Our focus in 2013. Accelerate! profitable growth. Grow faster than the market, increase presence in profitable growth geographies, maintain -- create a growth and performance culture, upgrade our marketing capabilities from idea-to-market, market-to-order, order-to-cash, improve our sales force productivity, get our sales force spending more time in front of customers and create value through innovation, resource, innovations and Hospital to Home, grow image-guided interventions and therapy, grow clinical informatics, grow clinical consulting solutions, increase our value segment portfolio in Imaging Systems and as Gene spoke about, win in radiology. And in driving operational excellence through Accelerate!, drive operational excellence, continue to reduce our overhead and our cost of complexity, leverage our industrial footprint in growth geographies. Gene spoke very well about that. And as Greg and Ron pointed out, continue to increase the coverage of our end-to-end projects because it is in the end-to-end projects that we are able to lean out our processes and really get to best-in-class processes and best-in-class IT systems.

So with that, I want to thank you very much for your attention. I want to thank you, all, on the webcast, and I would like to invite Ron back up to conclude the day. Ron?

Ron H. Wirahadiraksa

So the honor is on me to close off a great day about health care and a general update on the company. Thank you for being here with us on this fine early spring day. And thank you, all, for being on the webcast. We had a count of about 800 viewers, which is really, really good.

Frans talked to you about the progress that we're making on Accelerate!, how that delivers solid results, the growth opportunities and on our newly launched Philips Business Systems. I talked to you about how we're rewiring the company through a very rigorous market enterprise-wide architecture and drive cost out and more efficiency in the process. I also talked to you about more opportunities around DFX. And I reiterated our commitment to our share buyback program, which by the way, as of last Friday, was 85% completed. Deborah spoke to you about the commitments that we have around leveraging our capabilities, around the continuum of health care. And Ingo gave you a financial update, as well as an indication on how various economic developments, mainly in the U.S., impact us on the shorter and middle long term. Then Greg talked very passionately about his leadership role in transforming health care and that was great. Brent and Gene and Mike talked about how innovations, their innovations, leveraged the strong positions that we hold in each of the businesses. And then Danny and Bas spoke about how we're going to win in Japan and EMEA, Europe, respectively.

I'd like to thank the whole of the health care team for an outstanding preparation and presentation and your passion and engagement. And I always say this. Not so long ago, I was part of this team as the CFO. But as you know now, as Abhijit pointed out at the beginning, I Bank holds the financial reins. We consider that a good thing. And I'll never forget the day that the first person I wanted Ingo to meet was the head of our health care financial planning and analysis team, and his name was Stuart Cashman. So I thought when Bank meets Cashman, that should bode well for the prosperity of health care and it panned out reasonably well, I would say.

So thank you, team. Great job. I know this was quite an effort in the first quarter, where we are knowing all about the slower start of the year, but you pulled it off. It was very informative. And I hope for you very informative and engaging in the capabilities that we have.

I also would like to thank the IR team, our North America team and the audio/video and visual crew for a fantastic organization of a flawless day. Really, thanks to you guys, we can do this. So very well done. My compliments on behalf of the whole team.

This is it. Thank you for being here, again. Before you leave, please fill out the feedback form and we hope to engage with you real soon. Thank you very much.

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