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Koninklijke Philips' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Stocks in this article: PHG

As one of the work streams within the Accelerate! program we are reducing the overhead cost structure of the company and we made good progress and are on track with these plans. In the first quarter of this year, we reduced cost by about EUR37 million and that is on top of the EUR25 million which we reduced in the fourth quarter of last year. The Accelerate! program’s cost reduction initiative specifically targets the overhead cost structure of the company. That means that when these costs are removed they will not come back despite top-line growth. We are not cutting cost into core customer value chain of the company, as typically if you cut cost there you end up cutting R&D investments, which drive future growth of the company. So to make Philips a profitable growth company, we reduced overhead cost, while investing more into core customer value chain, especially in innovation and customer-phasing resources, and that drives higher value creation for Philips. Besides this, we are also executing on our plans to address the industrial footprint of, among others, our traditional Lighting business.

On the portfolio front, the end of the first quarter marks a very important landmark for the future of Philips. We have successfully completed the Television joint venture deal with TPV, and the new company is TP Vision. TP Vision will be a strong player in the global TV market and it will ensure the continuity of the Philips TV brand. TP Vision will leverage the strengths of the Philips brand, innovation power and trade relationships with the additional scale and manufacturing strength of TPV from Taiwan. The TV partnership with TPV enables Philips to further focus on expanding market leadership positions across our Healthcare, Consumer Lifestyle and Lighting sectors.

Another key element in the Accelerate! Program is to engrain a performance culture across Philips. We know that that will take time, but we are convinced that we need to invest significantly in this area and we see people responding positively already. To date, around 200 of our leaders have been through a behavior change program. This is an immersive three-day program that has been very impactful. The top 800 of the company are actually slated to go through this program by the end of this year. We also conducted our Leadership Summit in February this year, where the top 250 leaders were physically present and another 500 were attending through a live webcast. The response has been very encouraging and this summit was instrumental in driving the Accelerate! actions deeper into the organization.

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