Frans van Houten, CEO Royal Philips
JP Morgan Cazenove Pan-European Capital Goods CEO Conference, Surrey, UK
June 12, 2014
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 forward-looking 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 GAAP financial measures. These non-GAAP 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.
3
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
A strong diversified technology group with a vision to
make the world healthier and more sustainable
40 businesses in 3 sectors
1
Geographies
1
Adjusted EBITA of
€2.5 billion
in 2013
€1.7 billion
R&D spend in 2013
43%
20%
37%
North
America
Growth
Geographies
2Western
Europe
Other Mature
Geographies
30%
9%
36%
25%
Healthcare
Consumer
Lifestyle
Lighting
Since
1891
€23.3 billion
sales in 2013,
70%
B2B
5
Our business domains benefit from mega trends
Personal health & well-being
appliances and services
Energy efficient Light sources
Lighting applications, systems and
services
Patient care for hospital and
home
Clinical Informatics & consulting
services
Hea
lth
ca
re
Li
gh
ti
n
g
Imaging systems for diagnostics
and therapy
Co
n
su
m
e
r
Li
fe
style
Our Business Domains
1 Growth geographies are all geographies excluding USA, Canada, Western Europe, Australia, New Zealand, South Korea, Japan and Israel
Mega Trends
• Growing and aging population with
more chronic diseases
• Growing demand for integral
value-based healthcare solutions
• The world needs more light and energy
efficient lighting
• Digitalization driving demand for
integrated lighting solutions
• Growth geographies
1with growing
middle class
• Rising health & well-being
consciousness
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
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Becoming a lighting systems and solutions provider
• Joint effort to increase efficiency and
quality of public-lighting installations
• Combined implementation of LED
lighting and control systems including
Philips LumiMotion and CityTouch
• More than 60% energy savings
• Aims to make Barcelona a frontrunner
in the field of Smart Cities
City of Barcelona
• Largest arena façade for animated
LED light effects in Europe
• Every single point of light controlled
in real-time; palette expanded from
3 to 16 million colors
• 380.000 LEDs used in the system:
60% more energy efficient, saving
362 tons of CO
2per year
• Tailored LED growing lights and
vertical hydroponic technology
• Innovative farming model allows GSF
to harvest 20-25 times a year
• 30 - 60% energy efficiency compared
to fluorescent lighting
• Eliminates the need for harmful
pesticides and fertilizers
Stadium Allianz Arena
FC Bayern Munich
Green Sense Farms (GSF)
indoor farming systems
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
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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
• Invest in adjacencies to core
• Seed emerging business areas
Initiate new growth engines
• Invest to strengthen core
• Resource allocation to right businesses &
geographies
Expand global leadership positions
• Turnaround or exit underperforming businesses
• Productivity & margin improvements
• Rebuild culture, processes , systems & capabilities
• implement the Philips Business System
Transform to address underperformance
The Accelerate! transformation program started in
2011 will unlock the full potential of Philips
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Next to fixing our operational excellence, we are
also embracing digital & sustainability
Embracing Sustainability
• 51% of sales from green products
• Curbing the Carbon Footprint: decreased
CO2 emissions by ~14% since 2009
• Transitioning to Circular Economy
- Business model innovation: light as a
service
- Material recovery: refurbishing used
medical equipment
- Move to renewable energy for lighting
Embracing Digital
• Quickly becoming a digital company
• 13% online sales in Consumer Lifestyle in
2013, +32% compared to 2012
• Leveraging big data, creating Healthcare
Informatics Solutions & Services business
• Shaping the future of Digital lighting: new
functionalities and services based on the
transmission and analysis of data
Our Path-to-Value is clearly mapped out
2011 2016
•
Invest in adjacencies to core•
Seed emerging business areasInitiate new growth engines
•
Invest to strengthen core•
Resource allocation to right businesses &geographies
Expand global leadership positions
•
Productivity & margin improvements•
Turnaround or exit underperforming businesses•
Rebuild culture, processes , systems & capabilities•
implement the Philips Business System13
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
Accelerate! is changing Philips top to bottom
2013…..
Performance
Box
• Executive Committee
• Growth investments
• Philips Business System
• BMC
1performance management
• Share buy back
• TV Joint Venture
• Improving Lighting performance
V
al
ue
ROIC
2011
Performance
Box
G ro w thROIC
Laying the foundation to
improve performance
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
G ro w th
2012
Performance
Box
• Good sales growth
• Improved operating margins
• Increased cost reduction plan
• Inventory improvement
• Share buy back
• Lumileds and Consumer Luminaires
returned to profitability
• Culture change
Accelerating performance
improvement
G ro w thROIC
15
Accelerate! is changing Philips top to bottom
2013…..
Performance
Box
• Executive Committee
• Growth investments
• Philips Business System
• BMC
1performance management
• Share buy back
• TV Joint Venture
• Improving Lighting performance
V
al
ue
ROIC
2011
Performance
Box
G ro w thROIC
Laying the foundation to
improve performance
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
G ro w th2012
Performance
Box
• Good sales growth
• Improved operating margins
• Increased cost reduction plan
• Inventory improvement
• Share buy back
• Lumileds and Consumer Luminaires
returned to profitability
• Culture change
Accelerating performance
improvement
G ro w thROIC
1 BMC = Business Market Combination
2011 – 2013
Accelerating performance improvement
• Executive Committee and leadership strengthened
• Investments in growth stepped-up
• BMC
1performance management implemented
• EUR 1.1 billion cost reduction program on track
• Operating margins & Inventory management improved
• Television and Audio, Video, Multimedia & Accessories addressed
• EUR 2 billion Share buy back completed
• Culture change gaining strong traction
• Philips Business System being implemented
We have made steady progress since 2011, but
there is much more to come
Adjusted EBITA%
1
Rolling LTM
7.0 7.1 7.5 8.4 8.8 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
Group
Healthcare
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Accelerate! delivers growth and profitability
improvements supporting 2016 targets and beyond
Net Improvement in 2016 Reported EBITA
100-200 bps
1 Approximate margin impact in 2016 compared to 2013 baseline
