Koninklijke Philips N.v. · EURONEXT:PHIA
Koninklijke Philips — Investor Day (November 2020)
48 slides from Koninklijke Philips's investor day presentation, Nov 6, 2020
Slide 1: Our transformation journey to HealthTech leadership continues
Our transformation journey to HealthTech leadership continues Frans van Houten Chief Executive Officer November 6, 2020
Slide 2: Key takeaways
Key takeaways • Our transformation journey to HealthTech leadership continues • We innovate to improve 2 billion people's health and well-being per year by 2025 • Our three strategic imperatives: – Further improving customer experience and operational excellence – Boosting growth in the core by inno
Slide 3: Philips transformation
Philips transformation 3
Slide 4: Philips continues on its journey to HealthTech leadership, accelerating growth and delivering margin improvement
Philips continues on its journey to HealthTech leadership, accelerating growth and delivering margin improvement EUR billion (% of total)1 23 ~22-23 Consumer electronics2 17 Lighting Domestic Appliances (“DA”) 49% Diagnosis & Treatment 21% Connected Care 27% ~11 14% Personal Health excl. DA 21% 9% 2
Slide 5: Delivering strong shareholder returns
Delivering strong shareholder returns Superior total shareholder return since 2016 +105% +73% +10% Philips TSR peer group Euro STOXX 50 5 1. As of market close November 4, 2020. TSR peer index includes companies listed in the Philips Annual Report 2019
Slide 6: Gaining customer preference and international acclaim
Gaining customer preference and international acclaim Steady improvement in customer feedback1 Our brand is internationally acclaimed +4 p.p. World’s most innovative MedTech (2020) Derwent Top 100 Global Innovator for the 7th consecutive year (2020) 2018 2019 2020 Best of Health / Medical award for
Slide 7: Winning propositions
Winning propositions >65% of sales from leadership positions1,2 Ultrasound Image-guided Image-guided Diagnostic imaging High-end radiology Diagnosis & Global leader therapy systems therapy devices3 Global top 3 and cardiology Treatment Global leader Global leader informatics #1 in North America Pati
Slide 8: Committed to doing business responsibly and sustainably
Committed to doing business responsibly and sustainably Environment Social Governance We act responsibly towards our planet in Our purpose is to improve people’s We aim to deliver superior long-term line with UN SDGs 12 and 13 health and well-being through value for our customers and meaningful inno
Slide 9: Our strategy to win in a changing healthcare world
Our strategy to win in a changing healthcare world
Slide 10: We target a EUR 150 bn health technology market, growing ~4% annually
We target a EUR 150 bn health technology market, growing ~4% annually on the back of attractive, long-term trends HealthTech market is growing at ~4%1 Market trends supporting HealthTech growth EUR billion • Volume growth driven by population, aging, chronic diseases ~180-185 • Emerging markets incr
Slide 11: Our strategy to lead in health technology
Our Our strategy strategy totolead lead in Health in health Technology technology • Innovative solutions that deliver on the Quadruple Aim for providers and consumers, along the health continuum Healthy living Prevention Diagnosis Treatment Home care • Smartly combining systems, devices, informatics
Slide 12: We have a strong and focused portfolio, driving innovative solutions
We have a strong and focused portfolio, driving innovative solutions that promote health and improve healthcare delivery Personal Health Diagnosis & Treatment Connected Care Personal Health Precision Diagnosis Image-Guided Therapy Connected Care Deliver solutions that Provide smart, connected Innova
Slide 13: Recent developments have reaffirmed our strategy
Recent developments have reaffirmed our strategy Recent developments We are prepared for these developments • Increased cloud-enabled telehealth, remote patient • COVID-related acute care needs engagement, and hub-and-spoke models • Growth of ambulatory centers • Informatics and AI-enabled workflow
Slide 14: Delivering on our strategy
Delivering on our strategy
Slide 15: Drivers for continued growth and improved profitability
Drivers for continued growth and improved profitability Our 3 imperatives: Key drivers: Delivering: More lives improved Better serve • Deliver the best customer experience and quality customers and • Leverage our digital enterprise platform Higher customer NPS improve quality • Improve productivity
Slide 16: We will further improve customer experience and drive productivity
Better serve customers and We will further improve customer experience and drive improve quality productivity through step-ups in quality and automation Customer experience Quality Digital enterprise Productivity • Continue to drive up • Design for Excellence, • Grow Direct-to-Consumer • Drive progr
Slide 17: Our innovations enable us to extend category leadership
Boost growth in core business Our innovations enable us to extend category leadership Personal Health Precision Diagnosis Image-Guided Therapy Connected Care Philips One Helium-free MR operations Azurion with IntraSight IntelliVue 750/850 S1000 Radiation therapy planning OmniWire Mask Selector 17
Slide 18: Geographic expansion fuels our growth
Boost growth in core business Geographic expansion fuels our growth Accelerate IGT-Devices Scale healthcare informatics Further expand Sleep global growth • Globalize our informatics propositions • Further penetrate Devices markets • Strengthen existing positions in by leveraging our installed base
Slide 19: We increase share of wallet through increased customer intimacy
Boost growth We increase share of wallet through increased in core business customer intimacy Health systems Consumer channels • Scaling Long-term Strategic Partnerships into adjacent • Deepen partnerships with dedicated account teams, clinical areas e-commerce analytics and co-creation • Leverage H
Slide 20: Our integrated solutions deliver on the quadruple aim
Win with solutions along the health Our integrated solutions deliver on the quadruple aim continuum ~37%1 of sales from solutions growing to >45% by 2025 We bring together: Example solution areas: • Deep consumers insights AI & Systems • Oral Healthcare ecosystems software • Leading clinical and • F
Slide 21: We engage consumers in their personal health routines
Win with solutions along We engage consumers in their personal health routines the health continuum with smart devices, coaching and novel business models Oral Healthcare example Payer / provider Connected In-app behavioral Sonicare Rewards and Payer analytics partnerships products coaching Teledent
Slide 22: Our Precision Diagnosis solutions enable improved patient diagnoses
Win with solutions along Our Precision Diagnosis solutions enable improved the health continuum patient diagnoses and increased provider productivity Smart diagnostic systems Optimized workflows Integrated diagnostics Care pathways Ingenia Elition | VitalEye | Patient engagement | IS Precision Medic
Slide 23: With IGT solutions, we innovate interventional procedures
Win with solutions along With IGT solutions, we innovate interventional procedures the health continuum to handle more patients in less time, with better outcomes Integrated systems, devices, informatics & services Business model innovation Azurion | IVUS | iFR | IntraSight In-hospital care | Out-of
Slide 24: Our Connected Care solutions help orchestrate care from hospital to home
Win with solutions along Our Connected Care solutions help orchestrate and the health continuum seamlessly deliver care from the hospital to the home Emergency and hospital care Home care Health system management Continuous patient monitoring | Sleep apnea care | COPD and other Telehealth | Clinical
Slide 25: China Xiamen Cardiac Hospital solution
Win with solutions along China Xiamen Cardiac Hospital solution the health continuum Our co-creation approach promotes exceptional customer engagement Customer needs Solutions highlights • Leading cardiovascular hospital in China • End-to-end design co-creation, from patient journey mapping to imple
Slide 26: Our capital allocation supports our strategy and commitments to shareholders
Our capital allocation supports our strategy and our commitments to shareholders Our approach • Organic growth as the main premise of our value creation Reinvest in growth • Similar level of innovation investment and increased advertising spend M&A / portfolio • EUR 4.6 billion spend on M&A since 20
Slide 27: Our transformation is enabled by our leadership development journey
Our transformation is enabled by our leadership development journey and sustained by the Philips Business System 27
Slide 28: Our experienced and passionate executive team
Our experienced and passionate executive team Diagnosis & Treatment Innovation & Strategy Jeroen Tas Bert van Meurs North America Dutch Dutch Vitor Rocha CEO Brazilian/American Frans van Houten Kees Wesdorp Operations Dutch Dutch Sophie Bechu French/American Connected Care Legal Greater China Roy Ja
Slide 29: Key takeaways
Key takeaways • Our transformation journey to HealthTech leadership continues • We innovate to improve 2 billion people's health and well-being per year by 2025 • Our three strategic imperatives: – Further improving customer experience and operational excellence – Boosting growth in the core by inno
Slide 30: The next phase of value creation
The next phase of value creation Abhijit Bhattacharya Chief Financial Officer November 6, 2020
Slide 31: Key takeaways
Key takeaways • Significantly improved sales growth, Adjusted EBITA, free cash flow, and Adjusted EPS in the period 2016-2020 • Looking ahead, we accelerate sales growth and improve Adjusted EBITA margin to high-teens by 2025 • Productivity initiatives will deliver additional cumulative net savings
Slide 32: 2016 - 2020
2016 - 2020
Slide 33: We have structurally improved performance in the period 2016-2020
We have structurally improved performance in the period 2016-2020 Average comparable sales growth 4-6% per year Average Adjusted EBITA margin expansion ~70 bps 7 Free cash flow generation ~EUR 1.5 bn 7 Productivity savings EUR 1.9 bn 7 Organic Return on Invested Capital1,2 Mid-teens 7 Stro
Slide 34: Strongly increased gross margin and reduced cost
Strongly increased gross margin and reduced cost Adjusted Gross Margin • Gross margin step-up of 200 bps, despite tariff headwinds, driven by: 46% – Innovation and growth of solutions 44% – Solid mix improvement 2015 2020E – Productivity Adjusted non-manufacturing costs • Adjusted non-manufacturing
Slide 35: Productivity program exceeded target with >EUR 1.9 bn net savings since 2017
Productivity program exceeded target with >EUR 1.9 bn net savings since 2017 • Consolidated manufacturing footprint from 50 to 30 sites • Center of Excellence for value analysis and engineering established • Procurement savings driven by DfX1 and other programs • LEAN and Daily Management practices
Slide 36: Strong cash conversion and balance sheet efficiency drive cash flow generation
Strong cash conversion and balance sheet efficiency drive cash flow generation Cash conversion1 and free cash flow (FCF) • On track for ~EUR 1.5 billion FCF in 2020 114% 106% • Continuous focus on working capital: 97% >100% – Leaning-out supply chain – Overdue accounts receivable reduction EUR 1 bil
Slide 37: Over EUR 8 billion in dividends and share repurchases
Over EUR 8 billion in dividends and share repurchases, with EUR 5 billion reinvested in M&A, since 2015 Total dividend distributions and share repurchases1 Mergers & Acquisitions spend ~2.4 1.9 1.6 1.4 1.2 1.1 1.1 ~1.0 ~0.6 ~0.2 ~0.2 ~0.2 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 YTD 20
Slide 38: Long debt maturity profile and leverage ratio between 1x to 1.5x EBITDA
Long debt maturity profile and leverage ratio consistently between 1x to 1.5x EBITDA Debt maturity profile1 Net debt to EBITDA 1,000 800 600 1.5x 400 1.0x 200 0 2015 2016 2017 2018 2019 Q3 2020 9 1. As of September 30, 2020. 2. Includes forward transactions related to the share buy-back program for
Slide 39: 2021 - 2025
2021 - 2025
Slide 40: Significant value to be further realized through execution of our strategic imperatives
Significant value to be further realized through execution of our strategic imperatives Our 3 imperatives: Key drivers: Delivering: • Deliver the best customer experience and quality More lives improved Better serve customers and • Leverage our digital enterprise platform Higher customer NPS improve
Slide 41: Growth and margin improvement across all of our segments
Growth and margin improvement across all of our segments PH Diagnosis & Treatment Connected Care Personal Health 5% 5-6% 4% 5-6% 5% 5-6% Sales Sales Sales Sales Sales Sales CAGR CAGR CAGR CAGR CAGR CAGR 15-17% 17-19% 12.7% 14.6% 13.2% 19-20% 12.5% 16.1% 6.8% 1 2015 2019 2025 2015 2019 2025 2015 2019
Slide 42: Solutions and partnerships approach will continue to drive value
Solutions and partnerships approach will continue to drive value and recurring revenue streams Solutions revenue as % of total Growing double-digits, reaching >45% of total • Driven by innovation • Globalize informatics propositions • Expanding long-term partnership deals >45% ~25% ~30% ~35% • Phili
Slide 43: Indicative growth acceleration drivers
Indicative growth acceleration drivers 0.2% 0.2% 5-6% 0.3% 0.2% 0.2% 4.5% 0.3% 90% of sales >5% CSG 10% Low-growth Current Increased share Improvement in Telehealth and Services Prior M&A Risk Projected CSG CSG profile high growth low-growth informatics contribution businesses businesses 14 All forw
Slide 44: Driving EUR 2 billion productivity through 2025
Driving EUR 2 billion productivity through 2025 Procurement savings • Center of excellence for value analysis and engineering to drive low-cost country sourcing, life cycle management, and DfX1 EUR 900 - 1100 million • Indirect spend management driving demand and price optimization Supply chain • 60
Slide 45: Indicative annual Adjusted EBITA improvement drivers
Indicative annual Adjusted EBITA improvement drivers 0.3% 1.0% 1.2% 1.1% 1.3% 60-80 bps Volume Gross margin Cost reduction Price erosion Inflation Average annual improvement • R&D productivity • New product introduction • Upgraded IT backbone • Geographic expansion • GBS and RPA • Solutions • Real e
Slide 46: Robust financial framework geared to value creation
Robust financial framework geared to value creation Free cash flow Adjusted EPS growth Organic ROIC of conversion >90% ~10%1 mid-to-high teens Maintain current Disciplined Effective tax rate investment grade capital allocation 24-26% credit rating 1. Starting in 2022. 17 All forward-looking statemen
Slide 47: Key takeaways
Key takeaways • Significantly improved sales growth, Adjusted EBITA, free cash flow, and Adjusted EPS in the period 2016-2020 • Looking ahead, we accelerate sales growth and improve Adjusted EBITA margin to high-teens by 2025 • Productivity initiatives will deliver additional cumulative net savings
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