2014-06-12 Presentation at JP Morgan Cazenove Pan

Unlocking Philips’ full potential
Frans van Houten, CEO Royal Philips
JP Morgan Cazenove Pan-European Capital Goods CEO Conference, Surrey, UK
June 12, 2014
Important information
Forward-looking statements
This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to
the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forwardlooking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their
nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results
and developments to differ materially from those expressed or implied by these statements.
These factors include, but are not limited to, domestic and global economic and business conditions, developments within the euro zone, the successful implementation
of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in
exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete
successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of
technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips’ actual
future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future
results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2013.
Third-party market share data
Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as specialized
research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also
be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.
Use of non-GAAP Information
In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These nonGAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly
comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in our Annual Report 2013. Further information
on non-GAAP measures can be found in our Annual Report 2013.
Use of fair-value measurements
In presenting the Philips Group’s financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards.
These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are
subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are
estimated using appropriate valuation models and unobservable inputs. Such fair value estimates require management to make significant assumptions with respect to
future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our Annual Report
2013. Independent valuations may have been obtained to support management’s determination of fair values.
All amounts in millions of euro’s unless otherwise stated; data included are unaudited. Financial reporting is in accordance with the accounting policies as stated in the
Annual Report 2013, unless otherwise stated.
2
Agenda
1. We have built a strong foundation to drive profitable growth
2. The Philips Business System is our approach to value creation
3. Our ‘self help’ is a strong driver of our financial performance
4. Key takeaways
3
A strong diversified technology group with a vision to
make the world healthier and more sustainable
40 businesses in 3 sectors1
4
Geographies1
Healthcare
Consumer
Lifestyle
Lighting
Western
Europe
North
America
Other Mature
Geographies
Growth
Geographies2
43%
20%
37%
25%
30%
9%
36%
Since 1891
Adjusted EBITA of €2.5 billion in 2013
€23.3 billion sales in 2013, 70% B2B
1/4 of revenues from recurring revenue streams
50% of the portfolio has global leadership positions
€1.7 billion R&D spend in 2013
112,000 employees in over 100 countries
1
2
Splits based on sales full year 2013
Growth geographies are all geographies excluding USA, Canada, Western Europe, Australia, New Zealand, South Korea, Japan and Israel
Our business domains benefit from mega trends
Lighting
Consumer
Lifestyle
Healthcare
Our Business Domains
5
1
Imaging systems for diagnostics
and therapy
Patient care for hospital and
home
Clinical Informatics & consulting
services
Personal health & well-being
appliances and services
Mega Trends
• Growing and aging population with
more chronic diseases
• Growing demand for integral
value-based healthcare solutions
• Growth geographies1 with growing
middle class
• Rising health & well-being
consciousness
Energy efficient Light sources
• The world needs more light and energy
efficient lighting
Lighting applications, systems and
services
• Digitalization driving demand for
integrated lighting solutions
Growth geographies are all geographies excluding USA, Canada, Western Europe, Australia, New Zealand, South Korea, Japan and Israel
Redefining the delivery of care as a solutions partner
Partnering with the Stockholm County and Karolinska
University Hospital to meet future demands of healthcare
• Karolinska will develop new care pathways by integrating
patient care, clinical research and education
• Philips will provide access to state-of-the-art imaging systems
equipment and services for 14 years for 600-bed new hospital
site to be opened in late 2016, at predictable costs
• Managed equipment services include the procurement, system
integration and maintenance, including those of other vendors,
to ensure optimal delivery of care
• Strong focus on innovation, education and collaboration,
including establishment of a research and innovation hub
6
Becoming a lighting systems and solutions provider
City of Barcelona
Green Sense Farms (GSF)
indoor farming systems
• Joint effort to increase efficiency and
quality of public-lighting installations
• Largest arena façade for animated
LED light effects in Europe
• Tailored LED growing lights and
vertical hydroponic technology
• Combined implementation of LED
lighting and control systems including
Philips LumiMotion and CityTouch
• Every single point of light controlled
in real-time; palette expanded from
3 to 16 million colors
• Innovative farming model allows GSF
to harvest 20-25 times a year
• More than 60% energy savings
• 380.000 LEDs used in the system:
60% more energy efficient, saving
362 tons of CO2 per year
• Aims to make Barcelona a frontrunner
in the field of Smart Cities
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Stadium Allianz Arena
FC Bayern Munich
• 30 - 60% energy efficiency compared
to fluorescent lighting
• Eliminates the need for harmful
pesticides and fertilizers
Agenda
1. We have built a strong foundation to drive profitable growth
2. The Philips Business System is our approach to value creation
3. Our ‘self help’ is a strong driver of our financial performance
4. Key takeaways
8
The Philips Business System, our repeatable system
to unlock and deliver value
Philips Group Strategy
Manage our portfolio with granular value creation
plans and resource allocation
Philips Capabilities, Assets and Positions
Leverage our unique strengths and assets to drive
global scale and local relevance across our portfolio
Philips Excellence
Be a learning organization that delivers with speed
and excellence to our customers, applying a growth
and performance culture
Philips Path-to-Value
Create value to our customers and shareholders in
a repeatable manner
9
The Accelerate! transformation program started in
2011 will unlock the full potential of Philips
Initiate new growth engines
• Invest in adjacencies to core
• Seed emerging business areas
Expand global leadership positions
• Invest to strengthen core
• Resource allocation to right businesses &
geographies
Transform to address underperformance
ACCELERATE!
•
•
•
•
Turnaround or exit underperforming businesses
Productivity & margin improvements
Rebuild culture, processes , systems & capabilities
implement the Philips Business System
2011
10
2016
Next to fixing our operational excellence, we are
also embracing digital & sustainability
Embracing Digital
Embracing Sustainability
• Quickly becoming a digital company
• 51% of sales from green products
• 13% online sales in Consumer Lifestyle in
2013, +32% compared to 2012
• Curbing the Carbon Footprint: decreased
CO2 emissions by ~14% since 2009
• Leveraging big data, creating Healthcare
Informatics Solutions & Services business
• Transitioning to Circular Economy
• Shaping the future of Digital lighting: new
functionalities and services based on the
transmission and analysis of data
11
- Business model innovation: light as a
service
- Material recovery: refurbishing used
medical equipment
- Move to renewable energy for lighting
Our Path-to-Value is clearly mapped out
Initiate new growth engines
•
•
Invest in adjacencies to core
Seed emerging business areas
Expand global leadership positions
•
•
Invest to strengthen core
Resource allocation to right businesses &
geographies
Transform to address underperformance
•
•
•
•
Productivity & margin improvements
Turnaround or exit underperforming businesses
Rebuild culture, processes , systems & capabilities
implement the Philips Business System
2011
12
2016
Agenda
1. We have built a strong foundation to drive profitable growth
2. The Philips Business System is our approach to value creation
3. Our ‘self help’ is a strong driver of our financial performance
4. Key takeaways
13
2011
Performance
Box
Growth
Growth
2012
Performance
Box
• Good sales growth
• Executive Committee
• Improved operating margins
• Growth investments
• Increased cost reduction plan
• Philips Business System
• Inventory improvement
• BMC1 performance management
• Share buy back
• Share buy back
• Lumileds and Consumer Luminaires
returned to profitability
• Improving Lighting performance
14
1
Accelerating performance
improvement
Laying the foundation to
improve performance
• TV Joint Venture
BMC = Business Market Combination
2013…..
Performance
Box
ROIC
ROIC
ROIC
Growth
Value
Accelerate! is changing Philips top to bottom
• Culture change
Transform Philips through
Accelerate!
• Accelerate! Healthcare
• Restoring Lighting profitability, leading the
LED transformation
• Closing the Audio, Video, Multimedia and
Accessories deal
• EUR 1.1 billion cost reduction program
• Cost savings on procurement
• Value delivery from past acquisitions
• Next value creation steps beyond 2013
• Performance culture
2012
2011 – 2013
Performance
Accelerating performance
improvement
Box
2011
Performance
Box
Growth
Growth
Value
Growth
Accelerate! is changing Philips top to bottom
2013…..
Performance
Box
ROIC
ROIC
• Executive Committee and leadership strengthened Transform Philips through
performance
 • Investments inAccelerating
Accelerate!
growth
stepped-up
improvement
Laying the foundation
 • BMCtoperformance
implemented
improve performance
 • EUR 1.1 billion cost management
program on track
 • Operating margins &reduction
management improved
 • Television and Audio,Inventory
Multimedia & Accessories addressed
 • EUR 2 billion Share buyVideo,
back completed
 • Culture change gaining strong
traction
 • Philips Business System being implemented
ROIC
• Accelerate! Healthcare
1
• Executive Committee
• Improved operating margins
• Growth investments
• Increased cost reduction plan
• Philips Business System
• Inventory improvement
• BMC1 performance management
• Share buy back
• Share buy back
• Lumileds and Consumer Luminaires
returned to profitability
• TV Joint Venture

• Improving Lighting performance
15
1
• Good sales growth
BMC = Business Market Combination
• Culture change
• Restoring Lighting profitability, leading the
LED transformation
• Closing the Audio, Video, Multimedia and
Accessories deal
• EUR 1.1 billion cost reduction program
• Cost savings on procurement
• Value delivery from past acquisitions
• Next value creation steps beyond 2013
• Performance culture
We have made steady progress since 2011, but
there is much more to come
Adjusted EBITA%1 Rolling LTM
Group
7.0
7.1
7.5
8.4
8.8
Healthcare
9.3
10.1 10.7 10.6
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
12.4 12.6 12.8 13.6 13.9 14.2 14.7 14.9 14.6
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Consumer Lifestyle
5.5
6.2
7.0
8.2
8.8
9.4
10.1 10.8 10.9
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
1
16
Lighting
4.8
4.8
5.0
6.2
7.1
7.7
8.7
9.3
9.5
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Adjusted EBITA is EBITA corrected for incidental charges
Note – Financial in 2012 revised for discontinued operations, the adoption of IAS19R and for restatements included in the Annual Report 2012 (please refer to the
Annual Report section 12.10 “Significant Accounting Policies”)
Accelerate! delivers growth and profitability
improvements supporting 2016 targets and beyond
Categories
Measures
• Overhead cost reduction program increased from EUR 1.1 billion to
EUR 1.5 billion by 2015
Productivity
• EUR 1 billion through Design for Excellence (DfX) between 2014-2016
contributing to gross margin expansion
• End2End productivity gains to be achieved by 2016
Additional Productivity Improvements
>100 bps
100-200 bps
>100 bps
300-400 bps
Investments in
productivity
• Incremental one-time restructuring costs, investments to upgrade IT
systems, and re-engineer end to end processes between 2014-2016
- 50 bps
Investments in
growth
• Incremental investments in new (organic) growth in adjacencies with
returns after 2016
- 100 bps
• Contingencies to cater for moderate fluctuations in market growth and
price erosion compared to our assumptions
- 50 bps
Contingency
Net Improvement in 2016 Reported EBITA
17
Margin Impact
20161
1 Approximate
margin impact in 2016 compared to 2013 baseline
100-200 bps
The 2014-2016 Path-to-Value in more detail
Financial
targets 2016
• Sales Growth Comparable CAGR1 2014 to 2016
4 – 6%
• Group Reported2 EBITA margin
11-12%
– Healthcare
16-17%
– Consumer Lifestyle
11-13%
– Lighting
9-11%
• Group ROIC3
> 14%
• Invest in high ROIC organic growth opportunities as well as selected value
creating bolt-on acquisitions
Capital
allocation
• Maintain our A3 credit rating
• New share buy back program: EUR 1.5 billion over next 2-3 years
• Sustained dividend growth (40-50% of continuing net income)
• Further improvement to sales CAGR and EBITA targets from growth and
productivity initiatives
Longer term
direction
18
1
Assuming real GDP growth of 3-4%
• Group ROIC of 15-20%3
2
Including restructuring and acquisition-related charges
3
Excluding M&A impact
Outlook 2014
• Q1 performance reflected headwinds from currencies, the Cleveland
suspension and softness in selected markets
• These headwinds continue to weigh on performance in Q2
• As also indicated, we expect a stronger H2 driven by resumption of
Cleveland shipments, easier currency compare, and further
Accelerate! progress
• While 2014 overall will be a challenging year, we remain very
confident about reaching our 2016 mid-term targets
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Agenda
1. We have built a strong foundation to drive profitable growth
2. The Philips Business System is our approach to value creation
3. Our ‘self help’ is a strong driver of our financial performance
4. Key takeaways
20
Key takeaways
• We made good progress on performance
improvements in 2013
• Accelerate! continues to unlock significant value,
with the 2016 targets as the next step on our
path to value, and more to come thereafter
• Our cultural change is making us more customer
centric, agile and entrepreneurial, while
embedding integrity in everything we do
• While 2014 is a challenging year, we are making
good progress towards reaching our 2016 targets
• Tenacity and frugality remain key
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