Koninklijke Philips N.V. (AMS:PHIA)
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May 6, 2026, 5:35 PM CET
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CMD 2016
Nov 4, 2016
Good morning, ladies and gentlemen. Welcome here at Phillips Royal, Phillips Capital Markets Day 2016 at the Landmark Hotel. Also a warm welcome for those who are following us via the live webcast. We have a very exciting day ahead of us where we explain where we are in our transformation processes, and we will zoom into our Healthtech portfolio and strategy. First, as you know, Royal Philips retains a 71.2% stake in Philips Lighting.
As such, we continue to consolidate Phillips Lighting's results. However, today, we will focus our presentations and Q and A fully on the Healthtech portfolio. Before I talk you through the agenda, I would like to draw your attention to the following slide, which is our safe harbor statement that you can also find in your booklets. Let me talk you through the agenda of today, what we have in store for you today. After my welcome, Frans van Houten, CEO of Royal Philips, will provide an update how Philips transformed over the past 5 years and where we are today, followed by how we will create value for customers and shareholders in the medium term.
Immediately after that, Abhijit Batasharia, our CFO, elaborates further on how we will drive performance improvement related to the strategic elements that Frans will talk about. After that, Frans and Abhijit will have a Q and A on stage here. Followed by a break of 25 minutes, we will reconvene here at 10 to 11 U. K. Time to go through each of our three segments that we have in Royal Philips.
First of all, Peter Nota, Chief Business Market Leader Chief Business Leader of Personal Health and CMO will talk about how we will deliver value in personal health. After that, Rob Casella, Chief Business Leader of Diagnosis and Treatment, will tell you about the performance road map we have for this segment. This will be concluded by Jeroen Tas, Chief Business Leader, Connected Care and Health Informatics, who will talk about how we continue to drive profitable growth in this segment. This session will be concluded by also by a Q and A of these 3 business leaders together with Abhijit and France. After this, the live webcast will be stopped and we will record the rest of the day and we will publish this soon on our IR website.
After lunch, we will split in 4 groups, and we will go into what we call business Zooms or breakout sessions. In these sessions, we will aim to bring our health tech strategy to life and we will talk about interesting opportunities we see in the health tech space. We will do 2 before the break and 2 after the break. And at the end of each Zoom, we will also have a Q and A. Afterwards, Ronald De Jong, in this room here, will who is our Chief Market Leader, will talk about how we transform health care together through solutions and partnerships.
Afterwards, Frans will wrap up the day. Now with that, let me hand over to Frans van Houten, CEO of Royal Philips. Thank you.
Frans, Thanks. Well, good morning all to you here in the room, ladies and gentlemen, and everybody on the webcast. It's a great pleasure to have you here again to share where we are on our road map, which is an exciting story, certainly, for us. The key messages that I would like you to take away from my presentation are that we have transformed Philips over the last 5 years into a differentiated global health tech leader. We deliver innovative health technology at the point of care.
That's important. There's a lot of talk about all the competition in this market. We believe we have a unique position at the point of care supporting doctors and patients. And we leverage in our innovations deep clinical insights as well as consumer insights, and I will explain later this morning why that is so important. The markets that we serve have attractive growth and attractive profitability.
And we differentiate and create value for our customers and shareholders by 3 main vectors of value creation. First of all, we see a lot of opportunity to further improve margins through productivity programs and customer excellence programs. Secondly, we see opportunities to boost growth in our existing core businesses by executing better on customer partnerships, transforming them with recurring revenue and go wider in the globe through geographical adjacencies, basically taking products that we have in one geography and leveraging them elsewhere, and we give examples of that. Thirdly, we have a deep innovation pipeline that will generate future growth, an innovation pipeline that is increasingly characterized by our application focus, solution focus, where we combine suites of systems, devices, software and services and package them so that customers will have greater benefit in terms of patient outcomes and productivity. This comprehensive strategy will generate a mid single digit growth rate over the next few years as well as an annual profit step up of approximately 100 basis points per year.
We have consciously chosen for an annual increment in profitability so that you don't have to second guess our trajectory over the next few years, but rather Philips becoming a more predictable performance improvement company where every time we take a step forward and then we expect to close the gap to the average of the peer group in the industry. With that, I'd like to take you deeper into the Philips story. And I recognize many faces here, so some of you know where we come from. For others that are new to the Philips investment opportunity, perhaps it's interesting to understand where indeed we come from. Today, we call ourselves a focused leader in health technology.
But if you take a moment to see where we come from, in 2011, we were a diversified industrial company with many activities in different segments. The resulting profile in performance at that time was low growth, 2%, and low profitability, 4.7%. We have done a lot of work on portfolio transformation as well as investing in operational excellence, And we are proud to say that now we are a focused company on the attractive market of health technology. And where we are today, if you take the last 12 months of performance, then we see that we are able to generate 5% growth and 10.9% adjusted EBITDA. And as I said to you in the takeaway, it will not stop there.
But still, let's say, as a backdrop against the transformation, I think this points an interesting perspective. And it shows where we as management believe in and where we how we want to run the company as a focused operating company. The €17,000,000,000 HealthTech portfolio that we have today is targeting attractive segments. First of all, 39% of our revenue is in diagnosis and treatment. Diagnosis and treatment is all about helping doctors come to a first time right diagnosis and to come to the best precision therapy with the best possible outcomes of patients.
As you will imagine, informatics plays an increasingly important role to combine all the sources of intelligence around the patients to come to such a precision diagnosis. And we are right in the middle of that clinical informatics business. Connected Care and Health Informatics, already mentioned, is empowering consumers and care professionals with predictive analytics and clinical informatics solutions in order to drive better outcomes and higher productivity. That's 18% of our business and expectedly growing more rapidly. And in personal health, we actually enable people to take care of their own health through connected products and services.
From a geographical footprint, we believe we have a good spread with approximately 36% in North America, 22% in Europe and 32% in the Growth Markets. In that sense, we are less of a European company that some people, let's say, associate the brand name with. We see a lot of growth coming from these emerging markets. The markets that we serve, and that's both the markets where we have products in today, but also we include the nearby adjacencies where we can branch out gradually through investments in innovation, show mid single digit growth and a mid teens EBITDA on average. The growth in this market is driven by a number of vectors.
First of all, I think what everybody knows, a growing world population that is aging and will have a lot of lifestyle diseases, chronic diseases that may affect all of us here, in fact. The world at large is keen to give more people access to care, not just in the mature markets, but certainly also in the emerging markets. And for example, the sustainability development goal of the United Nations drives that. I think for this audience, certainly very important is the shift to outcome based care and reimbursement. While many people see that as a negative, we actually don't.
True enough, maybe it will create some pressure on wasteful, let's say, procedures. But on the other hand, there are a lot of opportunities for technology to play a role for data enabled health care delivery and higher productivity. So we see overall this transformation as a move from an artisan world to an industrial world in health care, where we have a big role to play. We also see the shift from hospital care and acute and reactive care to more proactive ambulatory and home care, and that actually combines consumer health to professional health. And we have a portfolio that targets both.
And we see the convergence of professional health care and consumer health actually as a great opportunity where we are positioned at the point of care in the last yard between you, the patient and the provider and us. So that's an exciting transformation in the market that we are in the middle of. And we start our play with a position of strength because 60% of our portfolio already enjoys leadership positions. And in our strategy, we are stitching this more and more together, leveraging the capabilities of all these business units. And that brings me to our concept behind the strategy.
Ladies and gentlemen, we have talked last year about the health continuum, and we continue to do that because we are all, as people, born living in a healthy way. But over time, through our lives, we may actually encounter disease. How do you prevent that? How do you diagnose it first time right? How do you treat that so that people can recover and go back to a healthy lifestyle?
My point is, if patient centric and people centric care is actually what we all should expect, that we need to organize health care accordingly. This insight, of course, is not unique to Philips. All our customers love this thinking. Insurance companies love this thinking because it helps them to prevent escalated cost. And governments like this thinking.
Within this concept, it's important that we go deeper so that it isn't just a concept. And we go deeper by going by understanding the care pathways, for example, for cardiovascular disease, cancer, respiratory care, pregnancy and so on, neurology. Because if you go deeper, then you understand how to take care of large populations of people at the right cost and outcomes. The trends that I have described support this concept. Our innovation strength, both in professional health care as well as consumer health, actually enable us to deliver on this vision.
So if we take this concept and then look at what Philips has to offer to the world, then I can take you quickly through this continuum and start at the left. In healthy living and prevention, we deliver connected products and services to support health and well-being of people. In diagnosis, we have many integrated modalities and informatics propositions to support doctors to make the right diagnosis. And this is still a Holy Grail for many doctors because many times patients are not diagnosed right. So technology and big data is going to play a role there.
And when you have a disease, isn't it nice to treat that first time right in a minimally invasive manner so that you can go home the next day? And we happen to be the leader in minimally invasive operations. As you come back home, we provide connected therapeutic products and services to take care of chronic patients. Along this whole continuum, we integrate, and we integrate through informatics, through patient monitoring. We provide real time patient data and analytics.
And that brings me to the takeaway at the bottom of this chart. We often get asked questions. How does Philips differentiate versus competitors? And what about all these newcomers in big data? Well, I always say, population health starts with a patient at a time.
And you need to enable doctors and people to get healthy. In other words, you need to be where they are. And we are in the last yard. With our products and services, we are in the operations of the care pathway. And we think that, that is a great and unique position to be in.
And as such, we feel very comfortable about our ability to compete in this marketplace. The differentiated innovations that we deliver are a result of deep clinical insights as well as research and development. And we have chosen a open innovation approach. We work together with many leading institutions in the world, be that in universities or academic hospitals. And you see just a smattering of examples on the right hand side.
In fact, the list of partnerships is larger than this, but you see some very big names there, such as Stanford or Karolinska, the Erasmus University and many, many others. Also in China, by the way, we have deep clinical research collaboration. We do spend a lot of money on research and development as we believe that, that is the lifeblood of the pipeline of innovations. And you can see here that quite a lot also goes into so called breakthrough innovation. That will come back a few times today as we talk to you about how we will also enter in some of the adjacencies such as, for example, digital pathology.
We have a very strong IP portfolio. And another point that I would like to highlight is the nature of our research and development. In fact, 60% of our R and D people are in software. Philips is much more a software company than most people realize. And infanetics is already a large portion of our business.
And every system and device we augment with smartness driven by software. The innovations as well as our brands are internationally recognized and acclaimed. And here is just a few examples of recognition that we are proud of. We have a very strong brand in China and that is every time supported by acclaim from, let's say, independent review bodies. We get many design awards.
We are seen as a top innovator. In the United States, you have the class awards, and we win many of these class awards. And then finally, but not unimportant, our brand value is on the way up. And I think it is a reflection of us shedding a more dusty past into an exciting, innovative future. That's all driven by the talent base that we have.
We are proud to have a diverse talent base across the world where many people are attracted to work for Philips because, in fact, of our purpose. And I get these stories from within Philips where deep machine learning experts, data scientists say, I'd rather work for Philips, helping to improve lives than predicting the next fashion color for next year. And I think that just underlines a bit, although anecdotally, what it is to be a focused company because it also helps on the talent front. And we are also driven by our values that you can read here for yourself. We have a strong management team that is also diverse, also covering the world from China, India, United States and Europe.
And I'm proud of this team because we run Philips as an integrated operation together where we have deep expertise in innovation and operation and strong business leadership and market entrepreneurship. It's also important to underline how we do business. And I also recognize that investors are increasingly asking to understand how you do business, but also our customers ask for it as they want to do business with partners that are committed to a sustainable future. Philips has been on this journey already for more than 20 years. We are in the 5th edition of EcoVision, and we have recently announced our 2020 program, Healthy People, Sustainable Planet, and there you can see here some of the performance parameters that we have committed ourselves to.
This commitment to sustainability has led Dow Jones to acclaim us as the Industry Group leader. So that has an introduction to who we are, but that's maybe not what you came here for. You would like to see how we drive performance in the future. So the second section of my introduction is all about the value creation going forward. In fact, we see 6 important value drivers that I will discuss with you here today, and these 6 come in 3 categories.
The first category is about operational excellence, improving productivity and serving our customers better. In fact, it is the continuation of our Accelerate journey, where we still see a lot of opportunity, a lot of self help potential in what we do. It will drive higher productivity by lowering the cost of goods, by lowering the non manufacturing cost, by lowering the cost of non quality, while at the same time, we are embedding the digital transformation in everything that we do. We believe that digital is a great enabler for better value propositions, but also for higher productivity and fewer errors. The second category of value creation drivers is around growth, obviously, and we are an attractive growth company.
We see opportunities to basically take areas of strength from 1 geography to the next. This has been also behind partly the success of Personal Health, where we take successful products in the United States or in Japan and, for example, bring them into China as we see emerging markets really adopting great innovations massively. But there are many other examples. For instance, most of our informatics portfolio is a U. S.-based business where we see keen interest in other geographies.
The second driver for growth is to change the customer relationship, both of which will drive mid single digit growth, higher operating leverage, but also results in stronger customer loyalty, higher NPS. The 3rd category of value drivers are the investments in the future. And we are investing a lot of research and development money into innovative value added integrated solutions along this care continuum. Secondly, we are filling in adjacencies, looking at partnerships and selectively do M and A. Both of these drivers will result in better pricing power, higher gross margin, but also the sustainable future growth rate.
Let's go a bit deeper into each of these value creation drivers, and let's start by the continuation of our self help journey, improving quality, improving operational excellence and productivity. Much of the excellence programs are captured in our Philips business system. I introduced that to you several years ago. In the meantime, it's deeply and widely adopted in Philips. And for example, it enabled us to quickly integrate an acquisition like Volcano.
The business system is basically setting the standard how we do business at Philips, and it fosters the adoption of Lean and 6 Sigma and many other Philips excellence practices. And I'm not ashamed to say we still have a lot of opportunity to do better in all of those areas, applying it also, for example, to our suppliers. The second category here is about productivity. And here also, we have a lot of experience, as you know, we have delivered on those productivity programs in the past. We are here announcing the next stage of our productivity programs.
And besides operational leverage, we target a €1,200,000,000 of cost savings programs over the next years, 3 years, coming mainly out of the manufacturing optimization, procurement savings above the market average and overhead cost reduction, which is, again, a continuation of what we have put in place, but there is still more juice to deliver. And Abhijit Bhattacharya will talk more to you about that. With enthusiasm, I talked to you already about the need to be digital, And we have been driving this digital agenda already for several years, and it will continue. Now what does digital do? Let's start with the customers because in the end, they need to recognize the value of us being a digital company.
I'll just give you four examples. We have businesses connecting services to elderly people, enabling them to live independently. And the online connection through the Internet of Things enables basically emergency response in an appropriate manner. We have millions of patients taking sleep therapy. These sleep therapy delivery devices are connected to the Internet where we can measure compliance and outcomes and give coaching for better efficacy.
Hospitals are looking for higher productivity. If data supports them in delivering on those operations, they can, in fact, be first time right. And moreover, within any given day, you can treat more patients within the same capacity that you have. And that is an example where digital workflows help doctors perform better. Moreover, in worlds where there's not enough staff to do the surveillance on many patients in many beds, patient monitoring, especially if it is predictive rather than only backward looking through predictive algorithms, you can say this patient needs more help whereas that patient is fine.
Now obviously, these kind of benefits do not come easily. You need to have an end to end infrastructure that is entirely integrated and digital. And we have adopted within Philips standard software platforms, both for the consumer, for connected digital propositions that you will see many of today, but also in the clinical application space for the hospital, where we can then effectively integrate all these workflows and have data smooth easily towards the people who need it. And at the bottom of this picture, you see what we need to do in our plumbing, in the infrastructure part of Philips, with integrated IT systems, end to end workflows, and in the middle, the Philips HealthSuite Internet of Things Cloud. It's something that we have been developing over the last few years, which is now fully operational and you will see it being referred to in many value propositions that we have in the market.
And we are going to open it up to 3rd parties as we believe that that will even make it more attractive, and there is a big demand for that. That digital transformation agenda will be pushed forward strongly. Then in the second bucket, I'd like to talk about growth. And let's start by looking about to some of the key geographies in the world. Let's start by talking about North America.
Well, you know that North America is predominantly a flat growth market. This is driven by the deep penetration that exists already and maybe pressures on budgets. But we have identified a lot of growth opportunities in North America. And I cannot, given the time that I have here, talk you through all of them, but let's just take 1 or 2. You all know that we have recovered from our Cleveland issues.
And now we are able to scale up diagnostic imaging and repair market share. That is going to give us above average growth. We are the leader in consultative partnerships with large integrated delivery networks. We now have close to 50, and we believe that this is going to be a formula that will help us drive growth. And that for North America will help us to deliver low to mid single digit revenue growth, which should be a little bit ahead of the market growth.
If I talk to you for a moment about China, I'd like to highlight maybe 2 examples. First of all, we see the emergence of private hospitals. The government has said that private hospital share of the market should go from 7% to 20% to 25% over the next 5 years. Many of these private hospitals are associated with international hospitals, and we have a strong task force on capturing that growth. Another great example is also depicted on the right hand side at the bottom, expanding Philips SoniCare in Greater China.
We have a huge successful franchise with Sonicare, and we have invested in the dental professionals in China to tell their patients to brush electrically. And that is starting to work very, very well. And the Sonicare growth in China is strong, strong double digit. Peter Nota will talk about that more today, but it is a great growth driver and it just underlines the innovation leadership. In China, we expect mid- to high single digit revenue growth.
And some of you have asked me, is that sustainable? And I'm saying, yes, that is sustainable. And over the next few years, we will see that. And that should be at least in line with the market. And then the rest of the world, a similar story, many growth opportunities.
For example, we are leveraging Volcano, the acquisition in North America, to penetrate all the other geographies through the Philips Business System. This helps us to deliver double digit growth for Volcano already for the whole year. Similarly, we can bring our informatics assets to other markets in the world, and we are doing that. For the global markets, we expect mid single digit revenue growth, which should be slightly ahead of market growth. The second growth driver is that we are pivoting from what we call a transactional business model, where you basically just sell a product and then the customer needs to take care of that themselves to a continuous engagement model, where we have common business goals, where we together focus on in hospitals, for example, to drive higher productivity and better outcomes.
This is underlying our strong success in large scale projects. And as I mentioned just before, we are close to having 50 now and we see and Ronald de Jong will talk about that we see a strong funnel to do more of them. There is on this page a couple of examples. And the benefit of pivoting to these relational these relationship contracts is that the question the customer asks is different, whereas Karolinska maybe in the past would have said, well, ship us a CT machine, and by the way, you need to be in competition with everybody else. Now we are consulting them on the redesign of the stroke pathway.
With Augusta Health in North America, which was the 1st managed services alliance in the United States, we have been driving cost productivity for them, while we have, in fact, a healthy business, which is margin accretive to our North American business. And in Finland, we have basically helped design a hospital from the ground up to deliver superb cardiothoracic care. The takeaway for this whole page is that we believe that by going into this relationship partnerships, we will get a committed revenue stream for many years. Moreover, if we evaluate all these large scale contracts, we know that they are margin accretive because they are more efficient perhaps for the customer, but they're also more efficient for us. Moreover, we can deliver a richer mix combined of systems, software and services and get paid for that.
So all in all, it's a great value proposition. In the 3rd growth in the 3rd bucket, we talk about innovation and how innovation can sustain future growth and future profit expansion. We have a rich pipeline of innovation. And as I said, increasingly, we are stitching together our innovations into what we call solutions that have bigger benefit for customers. And I'd like to give you just three examples.
When we go to a hospital and we talk to cardiologists, they are actually interested in driving procedure costs down and having a first time right procedure outcome. So in the category of total cardiac procedures, they ask us to become an integrator, an integrator that can build great interventional operating rooms, supported and augmented with smart therapeutic devices that are seamlessly integrated with the imaging within the operating room. And moreover, where software can validate that the operation has been successful and first time right, and therefore, the patient doesn't have to come back. And this validation software is hugely important when society pivots to outcome based care. Because in an outcome based accountable care organization, such a cardiovascular surgeon would not be paid again for a repeat operation.
The second example is in cancer treatment. Cancer is a disease on the rise, and it is still elusive and complex to diagnose. And we have brought together our oncology assets so that with great radiology imaging, complemented with pathology imaging and even genomics, we can come to a disease characterization. And then moreover, through image guided radiotherapy, we can treat the cancer tumor in a way that is far less damaging to the patient than if you have a more generic radiotherapy treatment. That latter example we do together with Elekta.
And maybe a third category of examples is around sleep, where we diagnose sleep patients, we deliver the therapy and moreover, through the Internet connection, we can measure whether the therapy is good. Now if we add up what we call these solutions and start measuring that in terms of revenue, then you see that the growth in solutions business is, in fact, higher than the growth in stand alone products. And I dare say that, first of all, on the lines that the strategy is right, but secondly, it's great because this is margin accretive for Philips compared to the average. And it gets you to more sticky customer relationships. Finally, the last vector is about filling up the portfolio along the health continuum through adjacencies.
Now Phillips is primarily an organic growth proposition, and we can fill many of these adjacencies through our own research and development efforts. And earlier, I talked to you about that 20% of our R and D, in fact, is for breakthrough innovation, and about half of that actually goes to new business creation. So on the left hand side, we talk about gross investments in new businesses, approximately €150,000,000 investment is there. Currently not yet not much revenue yet, but growing rapidly. And examples there are digital pathology, population health, the HealthSuite digital platform, but also the extension of patient monitoring, which today we are the leader in, into new care settings supporting ambulatory care.
And we do that, for example, by developing and introducing medical wearables. In the middle, you see some examples of partnerships. Partnerships are a great way to quickly extend the portfolio while managing risk. Elekta is a great partnership, but we have also chosen to work with partners in the Internet of Things so that this vision of connecting and integrating everything can be done quickly, working with the best industry partners such as Amazon, Qualcomm, Salesforce. And maybe a new category of partnerships that we see emerging are the partnerships with pharma companies.
Pharma companies that are seeking a feedback loop from patients. And I told you, we are in the last yard between to the patient, and we are in a position to actually measure outcomes, and we can also measure that on pharma, on medication. A last point that I'd like to mention here is that M and A will play a more active role in our volcano has been a resounding success. And I know many of you challenged me on it 2 years ago to say, don't you have other things to do rather than buying Volcano? And I said, no, this is critical for my strategy.
Moreover, I can report to you that since the integration started in Q1 2015, just a year later, we are we have turned around this company, which was stagnant when we bought it, to double digit growth already for 3 quarters in a row in 2016, while at the same time, we were able to take $40,000,000 out and making this a highly valuable business unit within Philips. There's lots of synergies, and Bert van Meers will talk about that later on. I'd like to wrap it up for you. I've discussed 6 value creation drivers in 3 categories: productivity, growth and innovation. Altogether, this results in an attractive picture that we strongly believe in of a mid single digit growth rate, which is going to be slightly higher than the historical growth rates that we have seen in the last 12 months.
Moreover, we target an annual improvement in profitability of approximately 100 basis points. We have chosen this approach in order to come to a more predictable improvement trajectory that we now feel confident about. And as we drive growth with higher operating leverage and margin expansion, we obviously expect the ROIC to go up accordingly, and our projections point towards a mid- to high teens return on the organic part of our plan. And this goes, of course, hand in hand with a higher cash generation that we estimate to be between €1,000,000,000 €1,500,000,000 annually. And it is something that Abhijit Bhattacharya will further elaborate on.
Besides generating financial returns, ladies and gentlemen, I see our strategy solidifying further our position in HealthTech, and I showed you this page. As we deliver on our strategy, our position in the care pathway along the health continuum will get stronger and stronger. We see a big demand for integration from our customers. They look for fewer suppliers that can bring a more integrated solution. And rather than me now elaborating again on this page, I want to show you through a compilation on what this actually does to hospitals and patients.
So bear with me, and let's look at this exciting video. And afterwards, Abhijit Bhattacharya will come to elaborate more on the delivery of the performance improvements. Thank you.
At Philips, we are leading the digital revolution that's transforming health care with connected solutions that empower people to manage their health and achieve better quality of life. We're bringing together with treatment that's more precise and less invasive. At Philips, we are there at every stage of care, connecting patients and providers to help predict and detect symptoms earlier and give the right preventative care. We partner with our customers to make health care more efficient, affordable, and personal through automating workflows and enabling personalized medication and care. We're unlocking the potential of connected health, combining our clinical expertise and consumer insights to lead the transformation of health care and build a healthier world.
Innovation and you, Philips.
Well, if you thought this was the future of Philips, this is actually Philips today. This is the company we've transformed into. This is what Frans was telling you about. This is what we do every day. Ladies and gentlemen, welcome to our Capital Markets Day here in London.
Welcome to all of you on the webcast. What I plan to talk to you about in the next few minutes is about what we have done in our performance journey and what we plan to do to drive further performance improvement to get to the targets that we've set for ourselves. I mentioned the first, which is transforming Philips. We are now a focused health tech company. It took us quite some years of heavy lifting to get there, but we are now at the stage that we wanted to be.
We are delivering on performance, whether it's at the DFX program, whether it's through new product introductions, which are driving up our margins, our cost saving programs, which are now visible in the profit and loss account, so that really leading to profit improvement. We've taken quite some actions on our balance sheet and I will come into some details later on, but that also shows you the strength of the balance sheet. And this gives us the confidence that we can go on to do this around 100 basis points margin improvement every year and continue on this growth trajectory of mid single digit. This, of course, will lead to also good cash flow, as Frans mentioned, but let's walk through each one of these so that we get a better idea of how we will get there. What I plan to do is take you first through each of our segments, tell you a little bit about where we are in performance and how do we go to the next step.
And for Personal Health, as most of you are aware, we have built a really solid track record of growth. What this graph shows you on the left is our compounded or our comparable sales growth as well as our adjusted EBITDA development over the last few years on a 12 month basis. Now growth in the mid to high single digit is something we have sustained over a long period of time, mainly driven by our innovations and that will continue. We've had a lot of geographic expansion. France just gave you the example of Sonicare in China where we are now the number one.
We are now in 15 of our 17 markets, which is a big expansion. We were pretty narrow earlier. And all this is backed by solid advertising and promotion support. So we have actually upped our marketing spend during this period to back the propositions that we bring to market. What this has done, of course, is also given us profit improvement.
You've seen the operating leverage, of course, but the DFX program, which, of course, had the first impact on personal health because you're able to change components much quicker than in the health systems business, driving operating leverage as we've said, but also a lot of work on the portfolio. We've set margin thresholds and then got our products to get to those margin thresholds and then weeded out, let's say, bleeders in the portfolio to drive this improvement. Let me take you through so what we plan to do here is sustain above market growth that means gaining market share and move profitability up into the high teens. We have a clear pathway here. Let's go to a diagnosis and treatment and here the focus is on operational excellence.
The reason we know we have to step up our performance in our diagnostic imaging business, But let me just decompose diagnosis and treatment in for a few seconds. This has 3 businesses. It has image guided therapy, which is growing extremely well and performing extremely well. Frans mentioned that when you go into the Zooms this afternoon, you will hear Bert talking about it. We have our ultrasound business, again, very good profitability, good order intake, as we've said in the last quarter performing well.
And then we have diagnostic imaging, which is where we've had our issues around CT and people normally refer to it as the issues around Cleveland. We've seen that now improving over the last few quarters with the profit step up coming in already. The other important part is the excellent integration of Volcano, making Volcano profitable, double digit growth, taking out a large amount of cost. In a short period of time, I think extremely well done. We expect this business, you see the graph at the bottom of the on the left, we've stagnated for a while.
We've now picked up in Q3. We expect that to continue reasonably short term to get into the double digit range. And then it's also important to know that in this trajectory, we are still weighed down by some investments we have to keep making in operational excellence in quality and in innovation. Our new portfolio on advanced molecular imaging, we'll talk about that later today, is now in an investment phase where you don't have, let's say, top line to support the profitability. So these are things that will come over time.
So the new product introductions and solution introductions, some new platforms coming out, major changes or major new innovations in the next couple of years. Operational excellence, as I mentioned, key fact that we have to keep driving. Our manufacturing footprint optimization plan, we've started some of it, but still more to go in the next couple of years. And this is the phase where the funnel that we have built up in the DFX program will start coming into the P and L because those new products that we had built the funnel of DFX or the savings on will now start coming to the market and therefore will drive margins higher. So here, building further on what Frans said, the idea is to gain market share back and that we see a clear path over the next 3 to 4 years to get margins into the teams.
Let me now talk about Connected Care and Health Informatics. You see on the top left that growth had stagnated in this business. We've been able to revitalize growth. We have a very strong position in this business, of course, with patient monitoring where we have over 40% market share. So we are a global leader there.
But we have increased that to mid single digit with a very strong order book that has developed as well. We have been expanding actually this very profitable patient monitoring franchise into both geographically as well as into larger care settings. So we talked briefly this morning and you will see it in the Zoom, how we are moving monitoring into the general ward. You save much more lives. You bring down the cost of care through contactless monitoring.
So you don't have to have patients hooked up with all kinds of wires, but through cameras, we are able to take readings that are able to monitor much larger group of patients at much more effective way for hospitals. Our new businesses that we are investing in, be it in population health or the growth in the number of applications we have on our HealthSuite digital platform are all beginning to kick in. But it's important to note in this business, we make a substantial amount of investment for breakthrough innovation going forward. And we've given visibility on that for the first time this time just so that you know this has a this is a portfolio where there is a running business which is extremely profitable and will move into the mid teens, but there is also a significant part of investment that we make around 100,000,000, which today doesn't have the revenue or the profitability support, which will come over time. We have stepped this up and this level is a level which we believe will work going forward.
This is in, like I mentioned, continuous monitoring, population health, the HealthSuite digital platform, etcetera. Getting the margins up from the current, let's say, double digit range to the mid teens will happen with a lot of similar things. So geographic expansion will continue. There are huge opportunities there. New product introductions that are coming out.
Here also we have started with the manufacturing footprint optimization to be completed over the next couple of years. The growth that we see coming back will help operating leverage. And last but not the least, our DFX savings will also start kicking in and that is how we expect this profitability to rise in the coming years. Let me tell you what this means then for the Phillips company, right. You see an adjusted gross margin, which has really now improved over the years.
We plan if we were to make this in the end of Q4, we would see that even further improving because Q4 is a big quarter for us. You see that the G and A cost that we have been taking out has actually now started resulting in G and A cost coming down in our P and L. And we have actually invested some of this back into either advertising and promotion or market related investments to drive this growth. So yes, our adjusted manufacturing cost is coming down, but that is despite the investments that we've made to stimulate growth both in our order book as well as in our sales. And we've done that by simplifying the company, taking out a lot of overhead costs and there's still more to be done as I will come to a bit later.
What does this mean for the profitability of the group and the growth? You see that we are now steadily delivering mid single digit growth across quarters for the last few quarters. You see that our profitability is on a steady improvement track. But here, I want to give you a couple of further insights just like I gave you on Connected Care and Health Informatics. At a Philips level, the investments we make on these breakthrough innovations, be it digital pathology that Frans spoke to you about or the examples I gave you in CCHI, these are to the tune of about 300,000,000.
Again, this has grown, but we now believe that we are at a level which is sustainable going forward. Why do I give this to you? Because when we value ourselves, we look at how much is really our operating profitability and this part is, let's say, a part of the cost which will remain at these levels going forward. What are some of the other levers we have going forward to improve our profitability? The improvement in the cost of goods sold, of course, overhead cost reduction, a very interesting new area that we are working on is actually leveraging our patent portfolio.
You know we have a strong patent portfolio, but due to some of the older patents falling off, we've seen a slight decline in the patent revenue. We are now looking at how to revitalize this portfolio to license patent into non competing areas so that we can drive profitability up there and of course, the reduction in legacy costs going forward. We have fair amount of standard costs arising from the automotive and Lumiled separation. Once that transaction is done, that will help us as well. So overall, this will then help us to continue with this mid single digit growth that we spoke about and improve our profitability by about 100 basis points every year.
Let me now go to the balance sheet to give you a quick glimpse of what we are doing there. You've seen quarter after quarter, we have made pretty big steps in converting our inventory to cash, and we've done that now for about 1.5 years. We still believe there is further efficiency to be driven there. You've seen our working capital, significant improvement again quarter after quarter over the last 4 to 5 quarters. The important thing here is that we are doing this through structural changes that we've made.
The deployment of lean, Hoshin plans, kaizens and daily management, if you walk through our offices now, you really see people driving this on a daily basis and that is what is giving these results. We have strong focus on collection of overdue debt that has again gone down and contributed to the cash, partnering with suppliers on credit terms and payments and of course, the overall working capital as I just mentioned. What has this led to? It has led to a cash flow, which is pretty high in terms of the cash conversion, and I will come to that a bit later. What we've also done along this way is to derisk some of our liabilities.
Not very long ago, our pension liabilities stood at €27,000,000,000 We have derisked that and offloaded them to insurers, changed our pension scheme from defined benefit to defined from defined obligations to defined benefit schemes. And all that has resulted in that pension liability coming down from $27,000,000,000 to $4,000,000,000 and we have now split that partially to lighting, partially to us. So we are a little bit above the $3,000,000,000 which is a much more manageable and less volatile amount that we have to deal with. You've seen that we have recently done part redemption of certain high coupon debt that we have. That is something we will still continue.
And once we are done in the coming quarters, we will get a €90,000,000 reduction in our interest costs. And there are a few more actions underway, which then year on year should get us more than a €100,000,000 reduction in our cost of interest. A few more data points. If you look on the left, you see our cash conversion. This is cash conversion on our net income.
We just take out the legal cases which put spikes, but from our operations, you see clearly that we have increased well above the 100%. Of course, 150 is not sustainable over the long run because we've done quite some actions on improving working capital, but there is still more to be done. And that is why we confidently say that we can get to the 1,500,000,000 cash flow every year. And if you remember for those of you remember, this used to be a number including lighting, which generated significant cash and we are now moving to a health tech company, which on a standalone basis will generate a good amount of cash going forward. You see the improving trend in the ROIC.
You will see that the ROIC also will go up many a time during our meetings with investors. People ask us, what is your ROIC excluding your goodwill because you have a lot of goodwill? Well, we measure ourselves actually including the goodwill because we have to earn a return on that. But just to satisfy your curiosity for those if you measure it excluding the goodwill, it's a very, very high amount. It's above the 45% actually.
So just on the assets that we employ, excluding goodwill, our returns that are generated on our businesses is very high. Let me also give you a look on the left on the right of the slide on the restructuring portfolio because we have been high on restructuring over a number of years. That was partly because we had to deal with the industrial footprint of our lighting operations. If you look at the group and you look at HealthTech, it's about half of what. So about the group, we were spending on an average 100 basis points, but for HealthTech, it was around the 50.
Going forward, because we still have some footprint optimization to do for our industrial setup as well as the overhead cost reductions that we have to do, primarily focused on getting our IT cost down and we've made already big steps there as we now start rolling out our new IT systems, turning off legacy and renegotiating some of the services that we got. We will bring that down, but it will result in a slightly higher restructuring over the next couple of years around the 65 basis points still significantly lower than where we were and then post 2019, we see that going further down. Let me give you a brief look on how we think this 100 basis points step up will happen. A part of that will come simply from operating leverage that we will get driven by growth. With the high margin businesses that we have, if we are able to grow that business without equivalent increase in expense, we get part of it.
The gross margin improvements will come from the manufacturing footprint optimization, the DFX program and the mix improvement that we continue to drive. The overhead cost savings will give us about 50 basis points of improvement. And of course, we have to deal with price erosion and inflation, which we expect will eat partly into these savings, so at the end, leaving us with around the 100 basis points improvement year on year. If you see this, this is largely a self help story going forward. It's still stuff that we have to do in order to further improve ourselves with continued deployment and use of our accelerated program.
A quick word on our capital allocation policy, not much has changed. We will continue to invest in high growing organic growth to strengthen our businesses. We saw a few examples of that this morning when Frans was speaking. You will see a few examples in the Zooms later. We will continue a disciplined approach to M and A.
You've seen that in the past, but we will be much more active for sure. Committed and strong committed to a strong investment grade rating. The dividend policy remains with dividend stability. We've completed our buyback, which we've done now for quite a few years. And like I mentioned, there's still some debt redemption and certain high cost liabilities that we need to deal with in the coming months.
So to leave you finally with our targets, I think Frans has mentioned them, I don't need to repeat it. We want to grow Philips organically to a $20,000,000,000 company in the coming years with the profitability that goes into the average of the peer groups. So and that will happen through, as I mentioned, continued operational excellence in diagnosis and treatment driven with growth, largely growth driven and innovation driven in Connected Care and Health Informatics and then continuing the strong momentum we have in personal health. We will drive cost reductions and our balance sheet improvements and this should then give us the high ROIC that we are talking about as well as good cash flow going forward. So what do I want to leave you with?
We have transformed Philips as we've been speaking over the last few years. We are delivering improved growth. We are delivering improved profitability. That trajectory will continue and that will lead us to our targets. So with that, let me invite Frans back on stage so that we could take a few questions that you may have.
Thank you.
Well, ladies and gentlemen, who can be invited first? Lady at the back. If we get you a microphone, and everybody can hear
Veronika Dubajova here from Goldman Sachs. Thank you for taking my questions. My first one is just on your statement on the M and A priorities. I think if a year ago, when you last gave us an update on that, you discussed focusing on smaller deals and taking it one step at a time. It sounds that you're a little bit more active on that front now.
Can you give us a sense in terms of size? Are there any constraints that you have? And then what are the areas that in particular you find interesting? And then my second question is on the cost efficiency program of the $1,200,000,000 I mean, you do operate in a lot of end markets where you have a lot of pricing pressure. So Abhijit, can you help us think through how that $1,200,000,000 savings, is that a gross or a net number?
And to what extent does that go towards offsetting some of that pricing that you see in the business?
Okay. Well, great questions. Thank you. We did say, indeed, last year, we take it one step at a time. And in fact, that's what we are doing, right?
Because last year, we had Volcano. This year, we did 2 rather small deals. 1 was PassExcel, which is deep machine learning on pathology images, which is really a very small deal. And then WellCentive, that is well in the €100,000,000 value, That is a SaaS, software as a service platform company for analytics on population health. So we expect to continue to look for bolt ons and nuggets that can help us strengthen our existing core businesses as well as pivot into some of these nearby adjacencies.
What you will not see us do is to go in an entire new game, right? It is about the nearby adjacencies. And yes, then it always depends a bit on what is actionable and what gives us an acceptable return. The return depends whether it's a more cost synergetic acquisition versus a longer term technology investment. So I'm often challenged, give me the criteria.
Well, we define different criteria for a synergetic acquisition versus a technology tuck in, but technology tuck ins tend to be smaller, whereas a synergetic game can be bigger. Now we would have classified 2 years ago Volcano as a technology play that's longer out, right? And we were quite pleased to see that even in such a company, the cost synergies and sales synergies in the short term were higher even than our plan. And so it goes to the point that even there you can drive nearby returns. Yes, so this kind of a path will continue.
And in terms of size, I've said many times, let's take volcano as a proxy, and that doesn't mean that we will never do something smaller or bigger, but that's kind of where we are in our thinking as a sweet spot.
I think to your point on the cost reductions, so out of the $1,200,000,000 roughly $700,000,000 will be towards more material cost savings through our DFX program and the rest is overhead reduction. Maybe I should correct a bit of the perception that being in a high price erosion market because we are in a our price erosion is about between 1% to 1.3%. That is fairly normal and we have been able over the years to offset that. In healthcare, we always give a range between 23. We have been at the lower end.
And in the personal health businesses, actually the renewal of our product portfolio enables us to offset price erosion just by having newer propositions at better prices. So I think what you will see is the cost savings and the improvement in margins. I don't want to say or make it mathematical in terms of what offsets price erosion and what offsets inflation. The increases that we'll have will be about 3 40 basis points and then 2 40 basis points of that goal in inflation and price erosion that leaves us, let's say, the 100 bps that we improve. That's I think the way to look at it.
Very good.
Thank you.
Okay. Can we get a microphone to this side of the room, please? Yes. Let's start there, and then we go to you next.
Thank you, Yeo. It's Ian Douglas Pannonsat, UBS. So the first one is on innovation spending. There's some really cool things going on, but it is phenomenally expensive. I mean, your R and D spend is probably the highest of any medical device company at the moment or at least close to that level.
When are we going to see a return on this Given your growth expectations for not for a huge pickup in revenue growth over the next few years, should we assume this is a long term investment? And then the other one was on Cleveland. You made a comment, Frans, earlier that Cleveland was now resolved. Could you confirm that we've had the FDA inspection to give you clearance there and that the consultants have gone home? And therefore, what to what extent if that hasn't happened, to what extent is the margin expansion that you're talking about dependent on resolution of those issues?
Okay. Well, interestingly, in your question, you said device companies, right? And as a health tech company, we are in systems, devices, but also in software and partly in the consumer health products. Each of those categories has have different R and D ratios that we benchmark, right? Let's say consumer products are more around the 5%, device companies perhaps more 7%, 8%, 9%.
But software companies, Cerner, EPYC, they are in the mid teens, right? And we are becoming increasingly also more of a software company. In fact, for software, your factory is your R and D, right? Therefore, I would like to ask you to take that into account. Now we did break out to you what part goes into kind of normal R and D, which is new product introductions and sustaining versus the 20% that goes into breakaway innovations.
And so I think we should focus the question on when do you get a return on that breakaway innovation because the rest is kind of bread and butter continuous business. And there, we see strong double digit growth in all the adjacencies that we have been investing in, whether that is the medical wearables or the pathology or the health care informatics. And Abhijit said that amount will not rise, but the growth will. And therefore, you could say that we get operational leverage on all those investments and the percentage of R and D over sales will therefore, over the next few years, gradually come down, right? And that's the return that you are looking for.
The only caveat there is still how the mix develops because as CCHI will grow faster than some of the other businesses, let's say, the software portion of that business will countervail that a little bit.
When you approve an R and D program, do you think about a return in 1 year, 3 years or 10 years?
That depends on the business that it is. In Peter's business, let's say, breakthrough innovation would be 3 years or so. I think, Peter, 1 Blade, which is a breakthrough, was started by your team in 2012 and got into the market about 12 months ago. I'm not talking about just making a new product, but really a breakthrough, right? In the medical space, a breakthrough innovation can take 5 years, 6 years.
But luckily, we started many already years ago. So we are now at the cusp of starting to cash in on these innovations. In the software area, it goes luckily faster, and maybe Jeroen can refer to that in his introduction. That's where we can see actually co creations with customers that get to revenue within the year, and that's attractive to us. So it's sorry for what's somewhat complicated answer, but you cannot paint everybody with the same brush.
Now as to CT and Cleveland, I will invite Rob later after the break to talk about it, but we feel that we have the operation under control. More cost productivity will come through. Our the nature of a regulated business is that the FDA can come any day. That is their prerogative. That is not ours.
But we feel confident about the robustness of the operation in Cleveland. And if the FDA chooses to come, then that's their thing, right? And even if they come and they say it's okay, they could come 6 months later to check whether it's still okay. So it's not a single moment in time and then it's done, yes, if you get the point. Okay?
Yes, please.
Thanks for taking my questions. It's James Moore from Redburn. I have 2. Firstly, I wonder if I could ask about how much is And I'm trying to understand within that how much is diagnosis and treatment and particularly MR and CT. I think you have 3 CT plants.
That, to me, feels the area of the best margin potential. I'd like to understand what you think the optimal number of CT and MR plants is within that, if I could. The second question relates to CCHI, where you talk about your market growth. It's clearly the highest growth area. I can understand where that's coming from.
You've got a profitable business in there, PCMS. But you have the other two pieces, which I know less, HIS and PCM. And there, we're talking about, is that the whole of the breakthrough portfolio, those two businesses? And when do those go to breakeven? And where do you think the margins in those pieces can be by 2019?
Yes. Earlier, I have talked about our manufacturing footprint being around 50 factories in in the HealthTech space and that we would like to consolidate that manufacturing footprint approximately by a third. The way to look at this is that we have many small factories next to a couple of big hubs. And the direction going forward is that we will consolidate these smaller satellites in the bigger hubs. So this is not about offshoring.
This is about basically weeding out factories that are too small, that only have a few 100 people and by consolidating it in regional manufacturing hubs that have more scale. This is not the time and place to identify individual factories, and so I will kind of skip your very precise question because that is a time and place for all of that. Rob will, in fact Rob Caschalla will, in fact, talk about the that in D and T, there is quite a lot of opportunity, and he has done some already, and there's some more to come.
2nd point.
Try to understand the margin profile.
Oh, yes. Then the detailing of the profile. The portfolio within CCHI, absolutely true that PCMS is our star in, let's say, that whole segment. Jeroen Tas took over all these software businesses 2 years ago. And I don't mind admitting that prior to that, those software businesses were treated as hardware businesses, right?
In other words, if we were to do radiology imaging analytics, we would sell it as a storage device, right? Now you all know that the price for storage is not exactly attractive. So that's the wrong business model. And Jeroen has shifted that business to a software as a service business model. And the profit improvement in Healthcare Informatics has been fantastic from negative to around high teens and soon should go to mid teens.
Now as it is a growth area, we have allowed Jeroen to make massive investments to extend the portfolio and it's in his area that we are the glue between all our device businesses, right, and where we do the systems integration. The HealthSuite digital platform, a whole suite of radiology analytics applications, cardiology applications, And then we go into the adjacency of population health, which is a new business that we are getting in, which is also a yes, an investment business that today is not profitable. So summarizing, PCMS, very strong business, high teens profitability. Healthcare Informatics has turned around, is now stepping up growth, great order intake, soon to be double digit profitability. And then we have population health, new business group.
It's an investment business, doesn't have a return yet, and that's okay because we believe that we will do a similar exercise with population health as we did with Healthcare Informatics. Did I forget anything? No. Okay. Good.
Thanks. Yes. We need to pivot to another table because otherwise, we are so what about this side of the room? We go over here.
Great. Thank you. It's Daniel Canne for Librium. Just a question on the balance sheet, if I may, the €100,000,000 savings you were referring to. First of all, do we have any sort of sense of time or time frame for that?
And second of all, is that likely to be refinanced? Or are you going to use cash to do that? And then in terms of the sort of premium over principal, is that going to be similar what we've already seen in the last transaction, which is, I think, about 30%, 35%?
Yes. I think so the timing is pretty quickly. So in the next few quarters, we will have got that done. Regarding the pricing, the previous one was because it was a longer term bond, it was 2,038, 2025, etcetera. The one left is the 2018 bonds, we have actually a make whole clause where we don't have to pay a high premium, so it will be significantly lower.
And then regarding the refinancing, I think currently our cash flow support that. So we wouldn't need at this time to do any major refinancing, could be for inter quarter dips that we do some short term, but that's not significant.
So it's using cash rather than refinance even though, I guess, company on 10x your debt sort of I guess, on 20x. I mean, is that the appropriate sort of measure? Or are you thinking more focused on reducing interest rates? Because it's sort of it seems a little bit I guess that's the question why using cash instead of refinancing?
These are high cost debt. I mean the payback is relatively short and it improves our earning profile and it doesn't help to keep the cash on the balance sheet without deploying it and keeping on bleeding this kind of high amounts on interest.
Okay. Thanks very much.
Anybody over there? No? Then we go there.
Thank you. It's Max from Credit Suisse. Could I just ask a quick question about the dividend? It's 0.8 now. You talked about dividend stability.
So is that with a view of keeping that dividend flat even once the lighting business is deconsolidated?
Yes. We aim to keep the dividend flat in amount.
Okay. And then just the second question was on those market share gains that you talked about in the U. S. Could you give a little bit more detail about how you're going to do that, whether it's some pricing or what really underlies that assumption within the growth?
The market share gains, 1st of all, come out of diagnostic imaging where we are between 5 10 points below our European and Asian market share. Maybe Rob can later on talk a bit more about that. And we have targeted programs in place to leverage our strengths in North America. So that is one driver. Secondly, we see opportunities to extend our very strong high end ultrasound position in adjacent areas that would effectively grow our market share in ultrasound.
We see that our market share in IGT, Image Guided Therapy, is on the rise given that we have this strong integration with Volcano and so on. So we see a lot of opportunities, but maybe Rob can come back to them. All right. Andreas? No, no behind you?
No?
It's Andreas from JPMorgan. Just wanted to come back to the numbers you run through before on Connected Care and Health's Informatics because if Health's Informatics is now into the double digits soon or close to that now? Patient monitoring doing a strong margin in the high teens. I still struggle to get to kind of 10% for the total. Kind of how does it all add up?
Because I'm not sure population management loses $300,000,000 $400,000,000
I think there was a bit of, let's say, the growth numbers and the EBITDA numbers when Frans mentioned. So we are profitable in HACE, but not in the double digit yet. So that's basically
Moreover, I mentally excluded the HealthSuite digital platform because it's a platform play that is not specific to that business unit and it goes for the whole company, yet it is consolidated in Jeroen's cluster. And that is also a significant investment.
So that's obviously negative as well.
Yes, exactly. That's part of that investment bucket we talked about.
And on the portfolio, you said earlier, you kind of done where you wanted to be. Two questions on that. Obviously, Lumilets is still there. Whether you could give us an update on that, particularly also given that there's a lot of uncertainty around the main competitor at the moment. Is it possible to do a deal in the current environment?
And on the Personal Health, is that the portfolio you want to run-in the medium term? Or is the domestic appliance side of the business, is that health care enough for you in terms of being part of the business?
Okay. Let's do a quick update on Luminess. At the beginning of this year, after the deal with the Chinese collapsed, we said we will take some time and we target a deal in the second half of twenty 16. We are still on a path to do that. We believe that the actionability of a deal gives us sufficient confidence to make that statement that we can still come to a conclusion this year.
I've said at the Q3 results that there is always a plan B, and I didn't elucidate what plan B is, but believe us, we have a plan B. But at this moment, we believe Plan A, which is an outright sale, can go through still this year. The personal health portfolio is important to us. It's important to us because of the strong consumer franchise that we have and capabilities that we have within that organization. It is less important for us that there are products in that category that maybe don't completely fit the, let's say, the criteria of a health product, right?
And we talked about the trend towards more ambulatory care, about empowering, but also holding consumers accountable for their own health. And then having the brand that has the trust of the consumer helps us tremendously. We are the master, so to speak, of the bathroom in the consumer home. We are there. We are in their kitchen.
We can influence their habits. So I think we should not get hung up on individual product categories. It's the overall franchise that is important. What we do hold everybody accountable for within personal health that if your product category is not entirely strategic, you better improve your profitability and your returns. But I can tell you that every category in Peter's portfolio does that, right?
And so therefore, there is certainly a good place in that portfolio for all of it. Okay. We go back to Ben here first to Ben and then over there. Thank you.
It's Ben Nuglow from Morgan Stanley. I wanted to understand coming back to this market share rebuild in North America. Can you give us a sort of qualitative sense of where the business is today? In the past, yourselves and Siemens have actually given us the market share data. So I remember from previous presentations, Siemens and GE sort of 27% market share, Phillips sort of just over 20%.
Feels to me as if your North American market share has come down quite dramatically. Is that a correct assumption? Is it and again, it feels like it's across the portfolio. This is not just about CT. We're talking about MR, PET, the entire diagnostic imaging portfolio.
Is that thesis correct? And then in terms of the order book rebuild, have we seen a kind of convincing trend year to date in 2016 that, that order book in North America is actually coming back across the piste Or are we relying are we waiting for the Q4 to know that that's going to happen?
Very, very perceptive, Ben. So our market share in Diagnostic Imaging in North America did come down over the last 3 years by a couple of 100 basis points in the aggregate for the DI portfolio. So I'm not talking about ultrasound and IGT. The restoration of market share has already begun. In fact, if you look at our gross numbers in the second half of twenty fifteen and throughout 2016, which are around the mid single digit for the DI portfolio, then we are above the market growth already.
So the market share restoration is already in play, and that gives us also full confidence to put it on the slide to say we see a lot of opportunity there going forward. So we are committing ourselves to delivering on that goal, but we know how to do it.
And just to follow-up, it's quite broad based across the portfolio?
Yes, yes.
But if you talk about across the portfolio in patient monitoring, we are strong and growing stronger.
No, he means with a portfolio of DI.
So if it's just DI, then it's across the portfolio of DI. But as Frans said, not ultrasound, not IGT, not PCMS where we've been doing well.
So it's But some of my colleagues can certainly comment on North America later on. I charge them to do that. All right. I think we have time
for one more. One more.
One more question. Behind you, Ben. This table here on the left is very question intensive.
Thanks very much. Skobadek from Berenberg Bank. So I just want to ask or get a feeling for what is more important in this midterm plan, accelerating the top line or driving top line growth and expanding your position or margin? If the top line doesn't come through, will you defend margin? Or if growth doesn't come through, will you increase investments?
Just that would be one first question. And the second question would be, clearly, you have a very broad manufacturing footprint, 50 manufacturing facilities is a large number for even for your revenue base. Can you just give us a little bit of background as to some of the history there and perhaps some complexities there which have prevented you from consolidating that infrastructure previously? Also, do you have many different operating systems, ERP systems or is this on a central platform for the new healthcare business? Thank you.
Let me start with that manufacturing footprint. It just hasn't been done. It hasn't been addressed in the past, right. And it goes back a little bit to the approach to how Philips was run more as a holding rather than as an operating company. And now we are doing it.
And yes, there are more ERP systems, but that's not the reason, right? The reason is that just it didn't get the attention to do it. Now admittedly, we also spent a lot of attention on lighting, where we did a lot of manufacturing restructuring. So yes, on the whole plate, there were many topics. As a more focused company, we can, in fact, deliver on this.
Now, I don't see a big hurdle. It takes always a bit more time in a regulated industry to do this, but there are no fundamental hurdles to do it. In fact, Rob will talk to you about how he has already reduced 6 factories over the last, what was it, 12 months or so?
Okay. First question. That was it. I think that
Top line margin.
Oh, yes, top line. Well, that trade off can always be made. But if you judge us on our behavior over the last few years, we have consciously invested in the future, even though we were under pressure to deliver better margins. And so you should see us as a steady long term strategic operator, where it is important for us to deliver all our goals that we commit with our customers. Now if, God forbid, something happens in the world whereby the growth doesn't materialize, we will, of course, immediately adjust cost.
But we would protect the strategic investment programs, especially in innovation, right, and as we have been protecting them over the last few years. So okay, good. Then I'd like to wrap up and give it back to Pim. Thank you very much.
Thank you, Frans Abhijit. There is another Q and A in a good hour from now. First, we will have a short break until 10 to 11. Thank
you.
So, good morning, everyone, and welcome back. Also the ones that are joining us via the live webcast, welcome back. I would really like to share some time with you how we are consistently delivering value in Personal Health with our Personal Health portfolio. So personal health has an important role on our health continuum, delivering integrated, connected solutions, supporting healthier lifestyles and living with chronic disease. So we do deliver continued strong growth and also margin expansion, and that is driven by 4 main factors.
So first and foremost, innovation, innovation at the forefront of digital health and also based on deep consumer insights, so leveraging our strong consumer capabilities. Our value propositions increasingly leverage consumer data and also unlock recurring revenue streams increasingly. We have, and I'll show you some examples this morning, high impact consumer marketing programs. And last but not least, we see ample opportunity for geographical expansion with proven propositions. So all of this leads to consistently driving above market growth.
So we are consistently, over the years, increasing our global market share, and we are stepping up our profitability towards the high teens, and that is all building on a strong track record. So the following businesses are part of our Personal Health segment. So in Healthy Living and Prevention, we have our Personal Care Business Group. And in there, you will find our large male grooming portfolio, but also our beauty appliances are in there. Then in domestic appliances, you will find our kitchen appliances, of course, helping consumers to make healthy homemade food.
But also, as an example, our air purification business, enabling people to live and breathe healthy air in their homes. In our Health and Wellness business group, you will find our fast growing oral health care portfolio and also our mother and child care portfolio under the brand Philips Avent. And then our sleep and respiratory care business group, where you will find largely in the home care part of the health continuum. And there, we provide sleep solutions and respiratory care solutions to millions of consumers on this globe. So we do have a winning value creation strategy in personal health that is delivering, and we consistently deliver above market growth, as I said, and also stepping profitability up towards the high teens.
We do leverage, in this slide on the Improve box on the left, to the max, our Accelerate programs, so our business improvement programs, you will find there our DFX programs. So you can read DFX, of course, as designed for costs to drive our cost levels down, but also as designed for quality. We consistently drive down our overhead costs and also see, of course, operating leverage there from our growth. We do rationalize also in this segment our manufacturing footprint, and we have a continuous and consistent strong focus on quality, and that also drives down our cost of non quality. But of course, in the center of this slide, you will find that there is a strong focus on growth in Personal Health.
So it is very much also about mix improvement because we consistently drive high growth in our high margin businesses. And we want to gain scale globally. So scale is gained through category leadership, also through innovation, through customer intimacy. We also gained scale through geographical expansion with proven proposition, so that is a fairly low risk strategy because we know how to do that very well. And mix is supported by a fairly strong pricing power, and you will find that that is again, underpinned with strong consumer ratings and reviews.
So if you look at our ratings and reviews, there you will find that, that says something about the strength of our propositions. Going forward, we will build further, consistently leveraging consumer data, of course, consumer relationship management, deriving value from those data, also helping our ROI on our marketing investments, real time marketing programs. And of course, we are launching a wide range of connected innovations, connected health programs that are all building on the Philips HealthSuite's digital platform that you heard also Frans talk about. So at the bottom of this slide, you will find that this has already delivered multiple quarters of above market growth. So I repeat, we are gaining share at a global basis, and that has also driven up our adjusted EBITA margin.
So with the Q3 numbers included, you will find that on the last 12 months basis, we are now well over 15% adjusted EBITDA in the Personal Health segment. So let me share with you three examples of innovations that I feel really represent the direction we are taking and also the excitement also consumers and patients find in our portfolio. So innovation at the forefront of digital health based on deep consumer insights. The first example I would like to share here with you is in our oral health care portfolio. It is about Philips Sonicare Connected.
It's a power toothbrush that has unique smart sensor technology built into the toothbrush, into the handle itself. And with that, it can track movement. It can track how well you are doing on your brushing routine. Users can receive personalized feedback through the Philips HealthSuite digital platform. You can also share some of those data with your dentist.
So all of all, this leads to a better oral health care. And we know that the mouth is the gateway to your body, so it also helps overall systemic health. And Efraad van Achin, one of the Zoom sessions this afternoon, will go more in-depth and will show you also a demo what this proposition can do. The direct consumer engagement elements, so the use of connectivity and the leveraging of consumer data will also further help us to unlock recurring revenue streams, for example, helping to enhance brush head replacement rates. And you might know that particularly the brush head business is for us fairly profitable, so that also will drive mix up.
We do support our global oral health care business with high impact consumer marketing programs. And we are also expanding geographically. All of this has led to Oral Healthcare delivering 8 consecutive quarters by now, double digit growth. And I will share with you now one example how we are bringing our proposition to the consumers in China. And just have a look at the following film.
The lady you will see in this TV and online digital media execution is a well known Chinese celebrity. So let's have a look please. So, you might not have understood every single word here, but that's not the point. So the point is that we are supported by programs like these, the number 1 in China in Power Toothbrushes. And China, of course, is the next big market for this business.
So we are well positioned to capture that growth going forward. So the next innovation that I would like to share with you can I have the next slide, please? Is in our sleep portfolio. And that is about our sleep apnea treatment therapy. It's about the Philips Dream family.
So this is a total sleep solution and consists of the DREAMWear mask, the DREAMStation therapy device and the Dream Mapper patient engagement app. The connectivity in this proposition really ensures that consumers, patients keep engaged in their therapy. So it helps compliance. It also helps providers to track compliance. And also, it keeps patients engaged with their care teams.
The hardware part of this, and you see the mask on this picture, really also the superior comfort and wearability of this mask also helps compliance. So the combination of connectivity and superior hardware really has delivered here a proposition that helps patients globally to live with sleep apnea. And we also bring this to patients, consumers with high impact consumer marketing programs. So we really leverage our strong consumer capabilities and help support that with our deep clinical know how, developing a winning proposition. So already today, we have 4,000,000 consumers or patients globally connected to our sleep solutions.
And in the following video, I would like to show you how we are actually already today bringing together with our strong consumer capabilities and our strong clinical know how, a winning proposition, which I believe is a very nice proof point of our health tech strategy. So have a look please at the following video.
We really put people at the center of everything we do. And with the dream family of products, we took that to heart. We incorporated maybe almost a1000 people into the design of Dreem Ware and Dreem Station. And as a result of that, we created design award winning products that really enhance actually change people's lives. The Dream family really takes what has been a very medical oriented product and really brings it to a more consumer level.
People don't want to be patients. People want to be people. I think Dream Family is the first complete system that really helps people feel more at ease with that and feel like Philips cares about them.
So again, I think this is a nice proof point of where, as Frans also talked about this morning, it really puts the consumer capabilities to serve also patients, consumers in this more clinical space and where we really leverage both to the full. So the 3rd innovation that I would like to talk about here is Philips 1 Blade, which is a male grooming solution that targets millennial guys that are experimenting with facial hairstyles. And it has some of them in the room. It has quite a lot of patented technology in here. So this is not a product that can be easily copied by competition.
It shaves any length of hair in one stroke, and it also establishes a new consumables category because the blades needs to be replaced once in a while. So this has been launched successfully now in 4 sizable markets around the globe. So in North America, in DACH, which is Germany, Austria, Switzerland, France and also here in the U. K. And we also see here that this product really meets consumer expectations.
So we see high consumer ratings and reviews in those 4 markets on average, 4.3 on a 5 point scale at Amazon. And that's another proof point for our strong capabilities here. So geographical expansion will drive further growth in 2017. And we have launched this proposition with a really innovative digital efficacy marketing program, where we really exemplary for our personal health portfolio as a whole, really make a lot of use of digital media. And it also helps to drive up our return on investment of our advertising spend.
And I will show you now one execution that is used both off, but also to a very large extent in online media, how to communicate how we communicate with this specific target audience. So please have a look.
This is OneBlade. One Blade for beards and stubble. It's not another gel cushioned 18 blade razor for the shaviest shave ever. Because this is Philips 1 Blade. Finally, a blade for beards and stubble.
Go against the grain. Shape and shave any length. Guys love it. Be part of it. And be your best you with Philips OneBlade.
Innovation in you. Philips.
So it really resonates with consumers. And it exceeds our own expectations, both in market share, but also in the absolute size that this business is taking. So more to come because we are only in 4 markets now, more markets to come in 2017. So let me summarize and just put some emphasis on the key points. So we do offer integrated connected solutions that are supporting healthier lifestyles and also enable people patients to live with chronic disease.
We delivered continued strong growth and also margin expansion by 4 main factors. So first, it's our high innovation rate that is at the forefront of digital health and is building on deep consumer insights. And you also heard Abhijit mention earlier on, this also helps us, of course, to offset price erosion in markets. We do also deliver value propositions, where we increasingly leverage consumer data and also unlock recurring revenue streams, whether that's in our oral health care portfolio with brush heads or in our male grooming portfolio with the blades or, of course, very importantly, also in our sleep portfolio with our masks. We also, across the board, drive high impact consumer marketing programs that resonate very well with consumers globally.
And last but not least, we opportunity for geographical expansion with proven propositions. All of this leads to us consistently driving above market growth, so also going forward targeting global market share increase. And we are stepping up profitability towards the high teens, building on a strong track record. So I'll now hand over to Rob Casella, who will go more in-depth in our Diagnostics and Treatment portfolio. So thank you very much and we'll be back for Q and A.
Thanks. Thank you. Well, good morning. It's my pleasure today to talk to you about diagnosis and treatment. And based on the questions that Frans had earlier, I'm sure it'll be a lively presentation.
So the key takeaways as we think about this business is that we think the definitive diagnosis and guided therapy are really foundational to precision health. And if you think about everything else that we've been chatting about in terms of health care, we do believe that on a global basis, we're headed towards precision health, doing things the right time the first time right, if you will, certainly doing things more efficiently and otherwise. In addition to that, we think that it's fundamental to our also our health tech strategy. Our plan is to grow market share, and we want to do that profitably. So clearly, there is operational improvements and business fundamentals in diagnostic imaging that needed to happen and they're happening.
We're currently shipping our full portfolio of CT products today out of Cleveland, Haifa, Suzhou and the like. So we're very happy about that. We've talked about the success of Volcano. Well, the intent today is to leverage the success of Volcano with a device strategy. So again, really the presence of our cardiovascular labs and our market share, the success of Volcano opens the door for us to broaden that portfolio.
And then also moving into underpenetrated adjacencies in ultrasound. We're number 1 in the world in cardiac ultrasound, but we've effectively not engaged as aggressively as we should in areas like general imaging and OBGYN. The aim again is to have above market growth and to achieve profitability in the teens. So you've seen this graphic a lot over the course of today, and you'll see it for the rest of the presentations and the Zooms and otherwise. In this one, we're focused on obviously diagnosis and treatment.
And when we think about definitive diagnosis, this is really this is a combination of a lot of information and the intelligent combination of information, multi modality information, multi discipline information, you name it. And the idea is again to pull the power of all that together to attempt to deliver on the promise of precision health and precision medicine. When an intervention is needed, we want to do that as least invasively as possible. So image guided therapy becomes the choice. The benefits there have all to do with lower patient recovery times, obviously, a better patient experience overall and a lower cost to the health care system.
So image guided therapy is here and will continue to grow in a broad range of different applications. On the bottom of the chart, what you'll see is Connected Care and our Health Care Informatics, which is Jeroen's business, and he'll be talking to you after my presentation. Everything that we do in D and T is related to the glue and the rail mechanism that Yarun has created. So we it is about information sharing, it's about workflow and it's about decision support, all of which are brought to us with all of the power that we have within our Connected Care and primarily our health informatics system. So very excited about that.
It doesn't matter whether it's a portal or our HealthSuite's digital platform or otherwise. I wanted to talk a little bit about just the characteristics of what is in diagnoses and treatment for those that may question. So we talked about image guided therapy. That's fixed systems, mobile surgical units and smart devices. We're going to talk much more about that going forward.
In ultrasound, we have a cart based, more stationary systems and portable, ultra mobile type devices. In diagnostic imaging, it is the full portfolio, very traditional MR, CT, molecular imaging and digital X-ray. In addition, these are all wrapped around very disease specific software applications. So we're we've taken modalities and gantries and we're focused on cancer. We're focused on heart disease.
We're focused on every other specialty and every other situation or illness that confronts the global population. But imaging products are the products that bring the visibility to that disease. If you look at some of the metrics below, a 6,600,000,000 euros business, our EBITDA is approaching 9%, and we spend about 9% on R and D. We have a significant installed base, 300,000 pieces of equipment, so a tremendous opportunity relative to installed base management, upgrades, replacement sales and so on and so forth. So compelling progress in 'sixteen, we made some substantial improvements in
diagnostic imaging.
We're not done, but we made some substantial improvements in diagnostic imaging. We're not done, but Cleveland is up and running. And as I said, the full portfolio of CT products are being sold. Our complete and on time deliveries are the highest that they've been in over 3 years. We've improved our gross margins by 400 basis points.
We've reduced the number of suppliers by over 20%, which may not sound like a positive, but the goal was to find fewer better suppliers with better terms, better quality, better reliability and so on and so forth. In addition to that, obviously, the strong profitability that we have in Image Guided Therapy and the successful integration and financial results of Volcano are obviously compelling to D and T. And then finally, in ultrasound, we're investing in adjacencies, both from a product perspective, from a workflow software perspective and from a sales channel perspective. So how do we create value? The value creation and a lot of this is going to get talked about in a little bit more detail in the presentation, but what I want to summarize on here is how do we create value?
How do we continue to grow and improve margins? Well, obviously, we want to improve the business fundamentals, So we want to focus on operational excellence. In addition to that, we want to grow through share gains and scale. So we in DI, it's all about share. In ultrasound, it's about diversification into adjacencies.
And interventional, it's really creating a device portfolio. And then what do we want to build? We want to build service and solutions. So again, it's not traditional service any longer. It's about how do we provide a solution that helps a radiology practice run more efficiently?
How do we help them make better decisions more efficiently? How do we help them make better choices on terms of the equipment that are is needed, the numbers of equipment, the utilization of equipment and so on and so forth? So we're at mid single digits relative to our sales growth, and we're aspiring to be above market in terms of that growth. We're in the high single digits, and we're again looking forward, want to be into the teens as an interim basis and continue to focus on those improvements going forward.
So to dwell a little bit
more into diagnostic imaging, the product portfolio advances are what's important today. So we have a complete digital portfolio in Ingenia MR, our Varios, PETCT and our Icon product. We talked about very disease specific applications. What we're looking at are ways to make the workflow better, make the clinician more accurate. And then that final bullet about emphasize workflow and connectivity, this is all about first time right.
It's about if you think of where the radiologists are going, a triple aim of I want to improve outcomes, I want to lower cost and I certainly want to enhance the patient experience. And that's everything that we're trying to do with this portfolio today. Oncology, we talked about cancer. It's becoming a chronic disease. We're spending a lot of time either on a proprietary basis or through our partners, Elekta and IBA.
We're developing technologies for better, more efficient image guidance to do less collateral damage to other organs. We're also doing image guidance so that we can be more efficient. If you think about the image to plan and rapid assessment, So what do you do in terms of getting that patient to the scanner for radiation therapy? And how quickly can we tell whether radiation therapy is being effective or not? That's what the power of imaging does.
Operational improvement excuse me, improvements, we talked about the footprint consolidations ongoing and then dedicated market programs. Look, our largest markets are North America and China. They represent 40% of our volume. Yes, we're focused on market share gains there. Yes, we've lost some market share, particularly in North America, as Frans had indicated.
But there are programs, people and products that are focused on making that better, making a difference there. Just a little bit about some of the products in the DI portfolio. We're reestablishing our brand in the premium high end CT with Icon that was just released this year. This is the first of kind spectral imaging. So if you think about what happens in CT, everyone talks about the benefits of dual energy.
This is always on effectively dual energy. So with every patient setting in oncology, in emergency medicine, you name it, we have the capability to take an initial exam and at the radiologists' discretion evoke what would appear to be a different energy level to get that different level of assessment. So without extra dose, without calling that patient back, so efficient, safe and obviously very accurate. So if you read the comment from a customer, what they're saying is, I'm seeing things that otherwise I had not seen before with traditional CT. So we're very excited about that.
Spectral Technology has the ability to move down our product line. So from an R and D perspective, we see it as a premium product, but also in a lesser configuration as a mid tier product as well. Can you advance that, please? There we go. So MR, MRI is an extraordinarily well used and very significant modality within diagnostic imaging, cardiac, oncology and obviously neurology.
So neurodegenerative diseases are on the rise. There's many, many programs underway for Alzheimer's or otherwise. MR is an imaging modality of choice relative to the diagnostics and assessment of that disease. We're spending a lot of time developing a neuro portfolio, which we think is second to none in the area of MRI. That's a, we think, a competitive advantage for us.
So, we're very excited about it. We think we're moving very much in tandem where the market is going for diagnostic imaging. So very sophisticated applications beyond the gantry itself. And that's where a lot of R and D dollars are being spent. Image Guided Therapy, we're number 1 in the world in cardiovascular systems.
So, interventional guidance in the cath lab is and has been an expertise of Philips. In addition to that, we're obviously looking at how we integrate other modalities, ultrasound, into that environment. So because we think the cath lab could benefit by a multimodality approach. If we think about the solutions and new business models, so we are really one of the only companies that can marry imaging, proprietary imaging with devices and software for a proprietary solution, ease of use, highly integrated combination of technologies. In addition to that, we're offering consulting services so we can manage your cath lab for you.
Office based labs, a phenomenon in North America, maybe global in terms of a procedure code for, let's say, a peripheral vascular atherectomy procedure. We sell the imaging, we sell the device, monitoring the information capabilities around that and so on and so forth. And then we're moving into some other areas using the power of that in 3 d imaging for spinal work. And finally, I told you that the device business is a of great interest to us and we are investing in peripheral vascular disease and devices focused on peripheral vascular disease, atherectomy, balloons, you name it all facilitated by the power of our imaging. Ultrasound, this is an easy move for us.
It is our great ultrasound platform, number 1 in the most demanding cardiac ultrasound, taking that platform and moving it to general imaging, which is twice the size of the market of cardiac and OBGYN, which is equal to the size of the cardiac market with different probe designs, transducer designs, probably different workflow and yes, some augmenting of our existing channels in critical markets like North America, probably China as well, but an exciting opportunity for us to move into very big markets with new technologies. In addition to that, we have our ultra mobile product, LUMIFY, which is a handheld self contained mobile device. It's very elegant and used in applications where we're extending the use of ultrasound into areas like pain management or even primary care, where otherwise you would not see an ultrasound machine. So we're very excited about that. There's some hybrid business modeling around it, so you can buy it under a subscription model in addition to it being a capital purchase and so on and so forth.
And then clearly, we're doing things with catheter based imaging. So not just volcano, but other proprietary products as well, where we're putting ultrasound capabilities at the end of a catheter and introducing that into the body to do intracavitary intravascular imaging. This slide, it's very busy and I apologize for it, but it is the essence of what we're talking about relative to precision medicine. If you think about what imaging does, imaging is about the data that is derived from morphology, the internal organs of your body, vasculature or otherwise. Well, we now have the capability through proprietary Philips products to take that, which is morphology, phenotype information from things like pathology, genomic information and bring the power of all of that together to truly deliver on that promise of precision medicine.
So if you simply take data and turn it into information, that's our imaging information, convert that now to knowledge as we start to build algorithms and decision support and combine it with other modalities to then be wisdom where we can predict the likelihood of success of a treatment or recurrence of disease, we have the capabilities in our portfolio to do all of that. And as you can see from the center, all of this is based on the ability to share information in a collaborative way, in a decision support way with deep learning algorithms, so cognitive learning, all the things that we can do with machines, but those machines require the data that are derived from D and T. Therein is the rationale of D and T being foundational to our success in precision medicine. So my final takeaway again at the heart of our strategy is diagnosis and treatment. We're really focused on market share growth and improved profitability.
We're doing that in a variety of different ways. I won't read these again to you. But again, DI is all about market share. Ultrasound is all about expanding into adjacencies. And interventional is about building a device portfolio that is it has a proprietary linkage to the imaging that's necessary to control that device.
Above market share growth and profitability into the teens. Thank you very much.
Thanks, Rob. Thanks also for teeing up my story. I'm going to take you the next 20 minutes through Connected Care and Health Informatics. And as I lay out that story, I would like to request you to put it against the backdrop of what Frans said about where the market is going. So about 80% in the Western world on health care is on chronic disease.
And what are the major chronic diseases? Heart failure, diabetes, pulmonary disease, neurological disease and even some of the cancers, as Rob pointed out, are becoming chronic disease. That calls for different approach to health care. Also, we're seeing the results of elderly care, growing populations and asking for new solutions to help these people deal every day, 24 hours with their disease. The response to that is also new ways to reimburse, moving more from feed to service towards outcomes.
And the response to that is also what we can see in North America, where providers are consolidating into integrated networks that are better equipped to deal with the chronic nature of their patients. So that's the backdrop. And what we want to do is be there to connect those patients that need 24 hour care to their caregiver, that we are there to interpret the needs of these patients and help them to provide the right care at the right time. And that should create better health, but also better economic outcomes for them as the reimbursements change. So I'm going to discuss with you how we're extending our strong position in patients' care and monitoring solutions and how we make that business grow again and how we create how we build on the tremendous knowledge we have about patients and their needs for monitoring.
I'm going to discuss with you how we took our clinical informatics assets and actually put these together and, in the last 2 years, turned that into enterprise solutions rather than a loosely connected set of departmental products. I will discuss the importance of our HealthSuite digital platform and where that will bring us. And then lastly, I'll talk about population health, which is a nascent market, but it's on the top of the mind of every CEO of an integrated delivery network. And everybody in the industry talks about population health. So at the end of the day, we will drive growth, and we'll step up our growth because we see that our portfolio is supporting these bigger trends.
And we also see that we can step up our profitability as we start gaining revenue from our investments. So what are the building blocks of our portfolio? So the core foundational building block is obviously our patient monitoring and Connected Care solutions. And we're a market leader, and Carla and her team have done a tremendous job in the last couple of quarters to make that business grow again and not only grow it again, but also to look at how we expand our position there. And every year, there are 370,000,000 patients that we help with our devices.
That can be our defibrillators in cardiac arrest. It can be people in acute care, in intensive care unit or a general ward. 370,000,000 patients that will see a trusted brand at a moment of need. So obviously, our goal is to take that out of the walls of the hospital and bring that to where people are 24 hours with their chronic disease. So we're extending not just in the space of monitoring and ventilation, where we create wearable devices that allow people to move through care settings.
We're also extending our ventilation. And the ventilation we see in Peter's business, at home, but also in the hospital. And right now, these are masks, but we're actually not just doing the last mile or the last inch. We're actually going inside the body to provide better ventilation. Health informatics is critical to what Rob talked about.
This is where we bring the information together. And it's not just images and the interpretation of images. It's really about creating context of that patient and starting doing that definitive diagnosis. And therefore, you need deep understanding of the domain. So we're not only being successful in supporting radiologists and most of the largest integrated delivery networks use our systems because we are the enterprise, the network player, but we increasingly start getting into the specialty areas like cardiology, neurology and oncology.
Population Health Management. And again, this is a new area, but what is it? It's essentially helping these large integrated delivery networks fully understand their population and help them segment their population into cohorts that they can then provide specific programs to drive better outcomes. And these programs tend to be 24 hour support. They tend to be better acute care, early intervention so that we can drive down the cost associated with emergency care as well as readmissions.
So we're bringing together a number of core assets to be the leader in this space. And last but not least, our HealthSuite digital platform, clearly an area of investment because this is essentially the glue that will bring it together. It's a core infrastructure that allow us to connect our devices securely, an Internet of Things, an Internet of Medical Things because that has a higher level of requirements around how you connect securely. Around data, and a big issue in health care is the fragmentation of data. So we bring that data together in what we call a longitudinal fashion.
So we capture the history of the patient because that history is so important for the definitive diagnosis, and we have the analytical capabilities. But these analytical capabilities are increasingly looking at complex data, images, reports. Around 75% to 80% of all data in health care is still in structured. So we're looking at ways to structure that so that we can quantify. And once we quantify, we can visualize and we can allow caregivers and patients alike to make better decisions.
So how do we bring that portfolio to great returns? And of course, we start with our operational performance. We've launched high impact quality programs that allow us to become way better at first time right deployment of our devices and systems that allow us to create better quality of the products that we bring to market, so less recalls and software upgrades required. Our productivity programs. Like my colleagues, we've been focused on design for quality but also design for cost and specifically looking at how we deal with our suppliers in a better way.
Also, in our organization, we've been consolidating sites, so to leverage better scale from our operations. We have been reducing overhead costs, and I have to say that I'm very proud of the way we now work across the organization in an agile way where the core of our organizations are self directed teams. We're growing. We're growing by expanding our portfolio into ventilation, but also our patient monitoring across settings. And I'm really excited about what we're doing in clinical analytics because vital signs monitoring is critical for care.
But what's more important that you put these vital signs in context of the understanding of the patient, And deep understanding of the patient will allow us to better predict adverse events as we do with our Guardian product today in the hospital. And you will hear Carla talk much more about that. So as I said, we're moving to large scale enterprise deployments. If 40 hospitals come together, they can optimize the radiology departments. They can optimize the way radiologists read those studies and get second opinions.
So you have to create a network environment. And we've been very successful with that. And the deals we're signing are getting larger and larger. So we're on a good trajectory there. And I'm also very proud to tell you that we dramatically upgraded our software capabilities.
We have centers in knowledge hubs, in software hubs like the Bay Area and Foster City as well in the Boston area, which is a hubbed of technology with clinical perspectives. But we also build out our India capability as well as our Brazil team. And that Brazil team is delivering tremendous value to what we're doing. So that's how we grow. That's how we grow our capabilities.
But ultimately, we're investing in the future. And you've heard Abhijit talk about the €100,000,000 that we invest in my business. And some of that will materialize in the next couple of years, and some of that will position us to where the market is going. We will become the leading player in oncology because that's where complex data comes together, building on our core strength in imaging, as Rob outlined to you. We will establish a strong capability in population health, combining analytics, health analytics with the way we engage with patients.
Because ultimately, if you want to drive outcomes, you have to be there with the patient, you have to support the patient, which is a theme you also heard from Peter because we are a strong consumer player. So if we can marry up these consumer capabilities with our understanding, deep clinical capabilities, we can help these delivery organization provide better outcomes. We are the leader in personal emergency response. So we have 600,000 elderly people every day, 20 fourseven, tethered to our response center. Now we're expanding these capabilities.
There are very few people that can say that they're actually 20 fourseven in touch with their consumers. So that we're expanding into full set of capabilities because all these elderly people will have at least 1 or 2 chronic diseases. So they need to be linked as well into the care system. So you see that short term, we're improving our operations. We have a great growth plan in the near term, and we also believe that we're building the future of where health care is going.
And while we're doing that, we'll move from mid single digit today to high single digit in terms of growth. Now you have to be aware that a lot of what we're doing is moving towards services. So the contracts will be longer, but the revenue will be spread. So some of that growth, that order intake, and we had a tremendous third quarter, will not directly be translated into revenue, but it will be recurring predictable revenue in the years out. Our EBITA margins will improve to the mid teens.
So we're still investing, but we also see true growth in our operational programs. We can get to mid teens and take it from there. So let me tell you a little bit about PCMS, but Carla will tell you later much more details. We are the global leader in patient monitoring. We understand what it takes to help a patient in need in acute situation.
We understand what information is necessary to make the right decision in the intensive care unit and in the general ward. But we believe we can expand our footprint and essentially be the leading provider for everything required in acute situations. We have tremendous opportunity to grow our services. Just our installed base gives us the license to sell new and exciting services to our customer that dramatically improves their performance in their intensive care unit. Carla will show you what we're doing in terms of wearable technology, medical sensing that is 20 fourseven linked to the general ward, the hospital, but will also support a transition out of the hospital.
Because in the hospital, you're surrounded by expert with high fidelity devices. The moment you're discharged, you should be able to continue to be monitored to avoid adverse situations. So we started launching new models. And for instance, last quarter, we did a deal of tens of 1,000,000 of dollars with Rush University Medical Center that helps us to work with them to improve their ICU through patient monitoring services. And we see this as the beginning of a trend towards larger, more service oriented deal with our customers.
In therapeutic care, as I said, we will expand into invasive ventilation beyond noninvasive. We're connecting our defibrillators around the world, and Carla has a great demo that you will enjoy. And we're increasingly looking also at emergency care because if we know a lot about the patient, if we know how to connect to care provider and if we have the right smart devices that we can put in the ambulance, that we can give people at the spot, at the locations where care is required, we will provide great opportunities for better care. In our Clinical Informatics, as I pointed out, today, we're leading the high end, the large networks with the largest providers in the world. We're leading in Cardioinformatics.
We have a clinical portal, basically the specialist station that is best in class, and we're doing this together with leading institutions. So we're moving towards truly software as a service, and the majority in this space is already software as a service. It is already moving toward teams in terms of EBITDA with solid growth. And the next generation will be clinical intelligence at the workstation, quantification that helps the specialists, the oncologists, the radiologists to make that definitive diagnosis. We launched digital pathology, and we have very high growth in that space.
Also there, we're looking at the same things. We're investing in quantification because most of pathology is still done with a microscope with as much as 40% variance in the diagnosis. So if we can make that more accurate, if we can help pathologists do a better job at that, and if we can ultimately link that with imaging and our genomics, then we really start addressing the root causes and the potential cures for cancer. HealthSuite Digital Platform, we launched it, and you'll see many examples throughout the day, with 14 digital propositions and 8,500,000 devices already connected every day, moving into an open platform for ecosystems because many of the large challenges we address, we will not be able to do on our own. So what we're taking is what we've done with 2,000 deployments in cardiology, where we combine complex information into a workstation that helps the cardiologists really do the right diagnosis, quantify what we have in that data and then to personalize the treatment plan.
We're taking that to oncology as well. Now oncology is more complex. It requires also the link to pathology, the link to genomics in many cases, the link to hospital information systems and typically collaboration between disciplines. But most importantly, we're also engaging the patient because where oncology and other diseases are going is shared decision making between the patient and the specialist. So that's a theme that keeps recurring, connecting the patient to the care specialist.
And HealthSuite is basically the enabler. It's the core platform. And what you see on this picture is actually an overview of the products that we launched in the market. So at the bottom, you see the devices that we connected ranging from medical consumer devices like this health watch to toothbrushes to MRs, AEDs and patient monitors. At the top of that, you see the applications as we expose that information to patients and caregivers and consumers alike.
So of course, we cannot do this on our own. So we're doing this together with some of the leading players in the industries like Qualcomm, Amazon Web Services. So we see this as a way to enable faster and more cost efficient time to market for our own propositions, but we also see this as an ultimate platform play where other people can develop their propositions and we get the platform revenue. But most importantly for us, it is an enabler to do what Frans talked about, to really become a solution provider. So lastly, our population health management.
So as I said, that starts with understanding the population, the health of the population and the risks of the patients in that population that you're responsible for. And we made an acquisition a couple of months back of WellCentive, generally regarded as a leader in this space. And what we're doing with them is we're really looking at the true drivers of health. And the true drivers of health are not just clinical. They're not just blood pressure, sugar levels, SpO2.
There are also behavioral aspects. So how can we stratify patient, not just on clinical aspects, but also these other aspects? And how can we craft the right care programs that create the best outcomes at the best cost? And how do we engage not just these providers and their patients, but also payers that are changing to more of these outcome oriented reimbursement models. How can we develop further on what we've learned in our ambulatory care programs.
We're number 1 in telehealth. We know how to remotely monitor patients that are in need of high acuity care. We know how to transition a patient out of the hospital. So how can we start building this out into what we call configurable chronic disease management programs, addressing this 80% of the cost of health care? How can we better manage those transitions so it becomes truly seamless?
And how can we help coaching patients, like you heard from Peter in the sleep and respiratory? So all in all, we're expanding our current position in personal response into true aging well. And what we're doing, I hope I explained to you, we're connecting those consumers and care professionals. This will lead to better outcomes, and it will lead to better economic outcomes. We will build this on a strong business in patient monitoring.
Our health informatics is really on a strong trajectory. We continue to invest in HealthSuite because that's the glue that brings it all together. And we invest in population health because that's where the world is going. And all in all, we will drive growth to mid- to high single digits and our profitability up to the mid teens.
Thank you.
I would like to invite my colleagues up for the Q and A.
All right. Well
done, Jeroen and Rob.
And we are again open for Q and A. Jeroen, stay here, please, yes? All right. Who would like to start probing deeper? Go here first.
Behind you.
Patrick Wood at Citi. I have 2 diagnostics related questions, please. The first would be, obviously, it's very small for you guys at the moment, be a point of care troponin tests. The in vitro diagnostics market is probably one you don't go halfway into. What are your views long term on how this looks on the sort of competitive space?
Are there other areas of IVD you'd be interested in playing in?
The Tropic that's the handheld icon.
Exactly, exactly.
You want
me to take that one, Frank?
The second, just quickly, if I may. On FFR in IV U. S, has the penetration of those continued to increase over time? And how is the competitive landscape looking there? Okay.
Jeroen takes it first. Rob, this is
Yes.
On the troponin test, it's actually the first of a family of tests. So it's essentially a handheld platform for blood tests. We see this as something we want to do increasingly with partners because many of the tests are not our core capability, but the platform and the connectivity of that platform is definitely a core capability. So we're essentially going to look for strategic partnerships in that space.
And the question on FFR and the penetration of that in IVUS as a proportion of total?
Yes. In MR for the North America MR and IVUS.
What's that?
Sorry, fractional MR. MR. Otherwise, we ask to say
I apologize. I have a cold and I am terribly congested. So I do apologize. It is strongest in North America. I think some of that is facilitated just by time to market reimbursement.
What we are seeing is that there are pockets of other markets around the world where through education that the healthcare systems themselves where we're seeing opportunities. So many new technologies are going to be based on whether the economics around them prove valuable for our local economy. So, we're very selective about the markets that we're going into.
And just very quickly one.
Yes, maybe Bert from Maersk this afternoon can go deeper into your very specific question.
And just one more very quickly, if I may. I think you guys historically said you were managing something like 15 petabytes of patient data. My question there would be what are the kind of core challenges in terms of anonymity of data ownership? And it's a complex area.
I'd be curious about what you have to say.
Yes. That's exactly what we're looking at. And we're already we I think we're up to 10 petabytes in the cloud already. So we're moving that direction. But right now, this is all owned by our customers.
They have the key to the data. Some of the customers, we made agreements that we can use the anonymized data for which they get approval from their patients. And for instance, many of our analytics propositions are the result of working with our customers and their patients on analyzing the data. So our starting point is customer and or patients own the data. They have to give us explicit permission.
Virtually always, it has to be anonymized. So that's how we structured the system as well. We have identifying data separate from clinical data, separate from contextual
And of course, encryption is one way to do this very well. And our conviction is that cloud based systems provide better security than all these on premise based systems that are badly managed by our customers. And the security is an integrated part of HealthSuite. Denis, on the front row there at that table.
Yes. Thank you. Danny Van Duisburg, ABG. I have two questions for Mr. Casella and 3 short ones for Mr.
Nota. Could you very impressive EBITDA performance in the Health Personal Health, sorry, from 10.4% to almost 15%. Can you maybe elaborate over the last 10 quarters or so on average, can you elaborate on to what extent Respironics has played a role here? Because I think I had the impression myself that Respironics had some tough years behind and may improve a lot as well on its own. So how has that helped to leverage and to improve your reported segment margin?
And then 2 short ones were on I remember that you're number 1 company in China for air purification. Maybe you can see if that's still a high growth market and high potential market for you? And are you happy with Seiko acquisition? Did it work out for you
so far?
Yes. Thank you. So I'll take the questions in the same sequence as you asked them. So first of all, the numbers on profitability for Personal Health that I showed in my presentation are all on a comparable basis. So the Sleep and Respiratory Care portfolio is included there.
So step up that you see includes also a healthy development in the Sleep and Respiratory Care portfolio. For the rest, it is really driven or in total by both like for like improvement for all the individual businesses, but also, as I mentioned, mix improvement because we prioritize the high margin businesses and Sleeping Respiratory Care is part of that, but also, for example, Oral Healthcare, Male Grooming, our Modern Child Care portfolio, we prioritize those for growth. So within the total portfolio, they grow above average and that, of course, also drives up the mix. So the margin improvement that you see at adjusted EBITDA level for Personal Health is a combination of like for like improvement of all the businesses over the majority of that time frame that you mentioned, but also mix. Then the question you asked about, let me take the coffee question, Saeko.
So the coffee portfolio is growing healthy and also seeing a development into improved profitability levels. So we are actually quite pleased with the development there that also adds to the valuation of that business. And then your third question was about air purification. Yes. So yes, we are the number one in China.
And so we are also expanding globally. So in China, of course, the business is very much around air purification. So as consumers believe that the air quality, of course, in their homes need to be improved. We're also moving outside of China, where we're also looking at allergies. So really helping people with allergies also to get a better air quality.
And then two short ones for Mr. Cassella. Maybe can you quickly give an indication of every €1, let's say, equipment sales in your department? How was the spin off for the other related business groups in Philips like services, like informatics, like patient monitoring, etcetera. So it would be helpful if you could shed some light there.
And then the other question is on your installed base, over 300,000 units on sales of roughly $6,000,000,000 I would say, excluding Volcano. Can you elaborate what is roughly your annual unit sales?
Sure.
Yes. As we look at more broader solution sales, the attachment rate of things like informatics and different technologies around connectivity, workflow and otherwise become a bigger portion of it. If we think about that today, it's probably 20%. If we think about service, the attachment rates are very, very high. And so if we think about major modalities like MR or cardiovascular, 90% attachment rates relative to service contracts with an average economics around that of about 10% of whatever the sale value was of the equipment.
So if that works. The second question?
Yes, more on your installed base and also maybe that's for me to work out the economics of growth because I would say with an economic life of about 10 years for your installed base, that would roughly already point to about 10% growth if you just reinvent the instant base. But then it's also on the 315,000 units, you probably could sell over 30,000 units per annum. So my question would be, if that's the case, how much sales would that deliver to you?
Yes. And I think you have to look at it by modality. So, 175,000 of the 300,000 is ultrasound. So, great opportunity for turnover. But the unfortunately, the contraindicate is that everybody is holding on to their equipment longer.
So, we see the installed base turning over less than the 10% that normally an installed base would rotate. And so consequently, people are holding on depending on markets longer from an equipment perspective. And since most of that is ultrasound, the average value is lower as well. But I would say that the biggest negative that we see is just that instead of the average of 7 years, we're now seeing people hold 10, even 12, 15 years depending on the technology and the modality. Okay.
All right. Let's see whether on this side of the room there are questions. There's yes, right there.
And thank you very much. Gael DeBry from Deutsche Bank. How do you incentivize people on finding the next blockbuster around the 3 divisions?
Well, we have moved from a kind of a holding approach where every business unit just kind of free for all can invent towards a more orchestrated road map of value propositions because now the LEGO bricks that every BU makes needs to fit into the overall, let's say, ability to build solutions. And therefore, the road mapping is supervised by our Chief Strategies and Innovation Officer, And we use themes to direct the innovation direction. For example, we have the cardiovascular space or the oncology space. And then we bring people together to kind of bring in their IDs for innovation and we judge how they fit in the overall scheme of delivering better solutions for cardiology and oncology and so on. And then we prioritize the investment.
So people are free to innovate, let's say, what they want. But before we really allocate budget to it, we look at the priority list on our strategy and how we can, let's say, drive the best returns. There is no lack of creativity in Philips. In fact, you could say that is our historic strength, right? But choosing which creative ID is funded, we have strengthened that capability a lot, right?
And therefore, it's about channeling the creativity rather than incentivizing for more creativity. We have more ideas than we can do. We don't need to put money on creativity, right? But we need to we put money on, let's say, the scaling up of creativity in the selected areas, and that's going increasingly well.
Can I have a second one on the competitive landscape in China for patient monitoring and imaging systems? I mean, it's been pretty clear that for a couple of years and a bit more than a couple of years now that the procurement policies have started to favor the Chinese players. So how did you prepare the organization to cope with the inevitable rise in the Chinese competition?
Yes. So 2015 was a darker year in a way. It was not as good for us, and we have recovered greatly to high order intake growth and sales growth. A couple of factors there. First of all, governments were seeing the long waiting lists for patients and therefore, from a macro policy, there is more authorization for new expansion of hospitals as well.
2, the immediate hype around local competition has died down a little bit. I mean, serious competitors, for sure. But last year, slots were being reserved for Chinese locals, and that has kind of, yes, eased off a little bit. Now it's, again, open competition rather than that slot is reserved for that local competitor. But more importantly, finally, China is also gradually migrating from a transactional model to a solutions model.
And we have succeeded Patrick Kun by Andy Ho. And Andy Ho is our new leader for Greater China, and he comes from IBM. And because we see that we need to break through in the same way with solutions like we do in Europe and in the United States. And I was in China last week and discussing this with the Minister of Health. How do you build the cancer centers of the future, right?
And how do you then create that integrated environment where data is being leveraged for better patient outcomes. And so I see now the pivot in China happening towards a more integrated solutions demand, and that plays into our cards, right? So that doesn't mean that local competition threat is going away, but we are starting to bring in our competitive differentiators in China, and I find that very encouraging. And I said in the Q3 results that we believe that this doubled that's it, this strong growth in China is there to stay, and I can say that with a level of confidence. We have also replaced quite a few people in our China organization to enable that pivot to more solutions orientated sales.
Okay. Then, Tim?
It's Tim Schulzman from JPMorgan. One strategic question and maybe a couple of housekeeping questions. You're moving into invasive ventilation. Where does that leave anesthesia and maybe incubation? Are those white spaces that would make sense within your portfolio?
Well, we'll take it one step at a time. It's a good question for this afternoon when Carla Krivit is presenting. Can you take it at that time?
Will do.
The housekeeping ones were just really just to make sure we're all understanding this right. On your margin targets, is the starting point the 11 percent you're targeting this year, including legacy costs or maybe a number higher than that, excluding Lighting legacy costs? The second one is on your margin improvement of 100 bps per year. Is it going to be a bit underneath that in the 1st couple of years? How do you see that scaling through years 1 to 4?
And should we be thinking about any big cash draw either through inventory buffering or cash expenses that may surprise us in early 'seventeen? Thank you. Abhijit?
Couple of things, the target for this year that we had said around the 11% was for the Phillips Group. So that is the consolidated results for the company that remains, so no change in that. The next question on whether it's going to be lower in the 1st couple of years, higher in the next, that's precisely what we want to get away from. On an average, we want to do 100 basis points a year. It could be a bit lower in the 1st year, it could be higher.
That depends on how the economy plays out and that's why we've kept that flexibility so that we don't have this kind of sport of every year, do you make the target by 10 basis points plus or minus. So it could be a little bit up or down, but around the 100 basis points a year to get to the mid teens that we are planning to get to. And in terms of cash, like I mentioned, there are few derisking issues where we will deal with. There are some loan repayments, but apart from that, we are not going to buffer up inventory. Actually, we want to buffer down inventory.
Okay,
over here.
It's James from Redburn. I wondered if I could get back to the issue of the U. S. Market share on imaging. There seemed to be a comment this morning about losing some share in other modalities, not just CT.
I can understand why CT would have had some challenges given Cleveland. I'm less clear on MR or X-ray. I wonder if you could perhaps talk a bit about that. And secondly, on the Personal Health business, great business, Domestic Appliances perhaps mentioned less. I wonder if you could talk a little bit about how the profit has developed there.
And I know there are pieces in there, coffee SDA. I wonder if you could talk a little bit about how the different pieces are moving and whether it's a core business as a whole or in pieces? And then just finally, PCMS is quite a complicated business within CCHI. I wonder if you could talk about whether there are different parts and different trends within that, whether any risks related to margin in that core engine of profitability over the next couple of years?
Sure. Paul, in sequence?
Yes, sure. Relative to the U. S. Market share, and I'll isolate it to DI and not include all of D and T because that is not the case with cardiovascular IGT and ultrasound. If I said it that there's a little bit of guilt by association, would that Unfortunately, that is the reality.
So you close down a factory in what would be defined as traditional big iron. You get a bad reputation for that. I think our markets people did a phenomenal job with shoring up the other modalities, primarily MR, which is a very complicated and sophisticated one. But nonetheless, there was some fallout because of that. And that's what we're rebuilding on.
Peter?
Yes. So on the Domestic Appliances business, so I did also answer on the previous question on Personal Health that we do see actually growth and profitability improvement across the portfolio, so which is helping the growth and margin expansion that I talked about in my presentation. So within the domestic appliance portfolio, of course, we have multiple businesses like our kitchen appliances business globally, but also air purification. Coffee is in there. So coffee, I mentioned, is showing good, say, progress in terms of profitability.
And also the entire DA portfolio, the domestic appliances portfolio, so also in Q3, we could show mid single digit around 5% comparable sales growth. So that is also contributing to the overall performance improvement trajectory that we are showing in Personal Health.
Okay. On PCMS, so essentially, we have 3 businesses: Patient Monitoring, which is a very solid franchise, as you know. We have the ventilation business, and we have our AED defibrillator business. What we're looking at in terms of growth is exciting new extensions to the portfolio, but the real growth will come from software and services. We already see tremendous order intake in the services.
We're investing in the software that actually combines what we're getting from our medical devices with patient profiles so that we can better help intensivists and nurses to intervene at the right point. And we see increasingly that patients are interested in paying for these kind of solutions. So I think it's actually a very well established, well run business, and you have the opportunity this afternoon to talk to Carla, who is responsible for that business. And I think we're building this out from a position of real strength.
If you would quickly rank the level of protection, then patient monitoring, we feel extremely strong and not easily to be disturbed by competition. Ventilation, we are the leader. Again, very strong franchise, not easily to be disrupted. And in the AED landscape, there are more competitors and therefore relatively lower barriers. But as we connect these devices, then we start to differentiate further.
Yes. For instance, we're now combining a monitor with a defibrillator, which we'll show you this afternoon. And that's hard to do for pure play AED providers.
I think we are coming to a close here. Maybe one more question, and then there's time for Ben here at the front. And then I hope the rest of the questions partly over lunch because there's going to be a lot of opportunity there. Ben?
Thank you. First question was for Peter. In your presentation, you said or it was in the slide that you needed to gain scale. And I was a little bit surprised by that because you've got a very big footprint already. What was the intention with that comment?
So that was question number 1. Secondly, for Yaron, I think I can't remember if it was France's or Abhijit's presentation, We highlighted the lack of growth in the patient care business in the second half of last year, a year ago. Can you just remind us what exactly was the problem then? What did you identify? And how has that been resolved?
And the final question is for Abhijit. In terms of the margins, and thank you very much because you are giving quite a lot of subtle margin information. Which I'm trying to absorb. What I'm sort of struggling with is the trajectory in Connected Care. You've got a patient monitoring business, which should be doing, frankly, very well, should be doing mid teens and high teens already.
That's where the peers are. And then we've got the healthcare informatics, which somebody said, I can't remember what the message was there, but it's already on a trajectory to Teams. So what I'm trying to work out in my head is the blend between what the core product patient care business is roughly and what where you are today, not where you want to go to, in health care informatics in a broad context?
Can I first take the question on personal health? On scale, Yes, you're absolutely correct. We do already, of course, today have a good global footprint, so absolutely. But there are still, if you look at the more granular level at our portfolio, say, scale is still to be advanced. So take our successful oral health care portfolio.
So we want to geographically expand. And the example I showed from China, of course, that was built over the last couple of years. So we are now the number 1 in Power Toothbrush. And of course, it positions us very well capture further growth because I firmly believe that China is the next big market for oral health care. So that to the point on scale.
Yes. Maybe you add to that, that we all have a conviction that relative market share creates more distance to your competitors and therefore, higher leverage. So we all believe that scale is important. That never stops. All right, Jeroen?
Yes. So when Carla took over the PCMS business last year, she actually did 2 things that had a major impact. She really doubled down on the quality of our products, our ability to deploy and install and get that right. And the other one was the market. So she spent a lot of time in upgrading our market capability, a lot of investment in the sales force, training the sales force, getting the right leadership in place.
And I think on both dimension, she managed to get the business back into growth. And so she did some real structural changes that I think will definitely play out in the next couple of quarters.
All right. Well, Vijay, I have
one more question.
Ben, not so subtle question. So three parts in CCHI, right. PCMS, good margins, mid teens, you will see that later this afternoon. Hospital Informatics Solutions and Systems, HISS, we call it the hospital IT business, which Frans was referring to good profitability, but together we club there the HSDP investments, which then make that business just profitable because you have the investment sitting in there. And then you have population health management, which is still today a very nascent business, so our investments there outstrip the revenues and profits that we make there.
Does that clarify?
Rescued by Abhijit. Thank you. All right. I hope you had an enjoyable morning. We threw a lot of information at you.
Many subtle messages indeed, Ben. Over lunch, I'm sure that you will grill all of us further. There's a wide representation of management that will sit at the various tables. And then this afternoon, we'll have an exciting afternoon. Over to you, Pim.
Yes. Thank you, Frans. So we have lunch in the drawing room, which is in the right corner there. And then we all get together at 10 past 1 on the other side of the hall for the business Zooms. And everyone has on the back of their batch a number in which Zoom, which of the 4 Zooms they will start.
Thank you.