Koninklijke Philips N.v. · EURONEXT:PHIA
Koninklijke Philips — Investor Day (2018)
43 slides from Koninklijke Philips's investor day presentation, 2018
Slide 1: Delivering performance, further unlocking our potential
Delivering performance, further unlocking our potential Frans van Houten CEO
Slide 2: An experienced Leadership Team
An experienced Leadership Team Present today CEO / CFO Segment Leaders Market Leaders Function Leaders CEO Diagnosis & Global Markets1 Innovation & Frans van Houten Treatment Henk de Jong Strategy Robert Cascella Jeroen Tas Operations Sophie Bechu Connected North America Care & Health Vitor Rocha In
Slide 3: Key takeaways
Key takeaways • We have transformed into a focused global HealthTech leader • We differentiate through innovation based on consumer & clinical insights and commitment to R&D • We are driving value creation by: – Improving customer and operational excellence – Boosting growth in the core by geographi
Slide 4: At Philips, we strive to make the world healthier and more sustainable through innovation
At Philips, we strive to make the world healthier and more sustainable through innovation. 4
Slide 5: We have transformed into a focused global HealthTech leader
We have transformed into a focused global HealthTech leader Key acquisitions + Volcano + Spectranetics 2011 2012 2013 2014 2015 2016 2017 2018 Key divestments - TV - Lifestyle Entertainment - Lighting (IPO) - Lumileds/Automotive TV/LE 40% 17% 21% Diagnosis & Treatment 12.8% Other 3% EUR 25 billion E
Slide 6: Our strategy resonates with customers, addresses their needs
Our strategy resonates with customers, addresses their needs Uniquely positioned in the “last yard” to consumers and providers f Healthy living Prevention Diagnosis Treatment Home care Connected products and Integrated modalities and Real-time guidance, smart Connected products and services supporti
Slide 7: Addressing the Quadruple Aim
Addressing the Quadruple Aim Improved Improved Improved Lower health patient staff cost outcomes experience satisfaction of care 7
Slide 8: Over 60% of sales from leadership positions
Over 60% of sales from leadership positions1 Diagnosis & Treatment Connected Care & Health Informatics Personal Health Patient Monitoring Male Grooming Ultrasound Global Leader Global Leader Global Leader ICU Telemedicine Oral Healthcare Image-Guided #1 in North America Global Leader Therapy Systems
Slide 9: We operate in growing, evolving markets
We operate in growing, evolving markets Strong growth fundamentals Rising burden of Increasing spend in Growing population Aging population chronic diseases developing markets Market evolution Digital Consumer centric Precision Consolidation Post Acute Care Connecting Increasing consumer Importance
Slide 10: Innovation is core to our value creation
Innovation is core to our value creation Commitment to innovation Driving growth and margins EUR 1.8 billion in R&D 60% >50% 9.9% of sales R&D professionals in software New product sales1 and data science >10% 6% of PH Deep clinical partnerships LTM2 order intake growth With academic institutions an
Slide 11: Drivers for continued growth and improved profitability
Drivers for continued growth and improved profitability 11
Slide 12: Drivers for continued growth and improved profitability
Drivers for continued growth and improved profitability Better • Improve customer experience, quality systems, Customer serve customers operational excellence and productivity satisfaction and improve quality • Continue to lead the digital transformation Revenue growth Boost • Capture geographic gro
Slide 13: Improve customer experience, quality systems, operational excellence and productivity
Better serve customers and Improve customer experience, quality systems, improve quality operational excellence and productivity • Further strengthening Quality Management System and compliance; on schedule for EU MDR1 • Increasing and extending productivity program to EUR 500 million annually for 2
Slide 14: Continue to lead the digital transformation
Better serve customers and Continue to lead the digital transformation improve quality Leading to deeper customer relationships and higher value propositions Main aspects of transformation Example of connected propositions Connected, digital products Connected customers and consumers Dream Family So
Slide 15: Capturing geographic growth opportunities
Boost growth in core Capturing geographic growth opportunities business Replicating proven Further strengthening Leveraging global footprint propositions in new markets go-to-market for acquisitions • OneBlade rolled-out to 10 new • +160 bps1 market share gain in • Volcano and Spectranetics deliveri
Slide 16: Pivot to consultative customer partnerships and services business models
Boost growth in core Pivot to consultative customer partnerships and services business business models Long-term strategic partnerships Recent deals unlock value for our customers and us Built on: Leading to: • Common goals Deeper C-suite relationships • Joint commitment Delivering success to cu
Slide 17: Drive innovative, value-added integrated solutions
Win with solutions along Drive innovative, value-added integrated solutions the health continuum We are uniquely positioned to deliver integrated solutions We bring together: Example solution areas: Systems • A holistic view on the needs of • Precision diagnostics consumers, patients and providers I
Slide 18: Guardian Early Warning connected care solution – addressing the Quadruple Aim
Win with solutions along Guardian Early Warning connected care solution – the health continuum addressing the Quadruple Aim Vital signs Health outcomes Cost of care monitors of Cardiopulmonary 24% reduction in ICU admission 86% reduction Arrests 1 rate 1 reduction in mortality of can reduce length o
Slide 19: Reinforce with targeted M&A and organic investments
Win with solutions along Reinforce with targeted M&A and organic investments the health continuum Creating a unique solution offering in Image-Guided Therapy Leadership in systems Expand into devices Innovate the procedure Better margins and Acquisitions perform Solutions delivering on the market sh
Slide 20: Leadership culture is an important element of our transformation
Leadership culture is an important element of our transformation 20
Slide 21: Our sustainability programs address pressing societal issues
Our sustainability programs address pressing societal issues Focus on United Nations Sustainable Development Goals, in particular #3, #12 and #131 Climate change Carbon-neutral in our operations, 100% renewable electricity (2020) 15% circular revenues, zero waste to landfill (2020) Circular economy
Slide 22: Segment performance trajectory 2019-2020
Segment performance trajectory 2019-2020 Connected Care & Diagnosis & Treatment Personal Health Health Informatics 5-7% sales growth 3-6% sales growth 5-7% sales growth 14-16% margin 14-16% margin 17-19% margin 22 Note: Margin refers to Adjusted EBITA margin by 2020
Slide 23: We are pro-actively addressing headwinds
We are pro-actively addressing headwinds Headwinds Mitigation actions • Trade tariffs1, estimated net EUR 60 • Adjusting supplier base million in 2019 • Reconfiguring supply chain, leveraging • One-time EU MDR investment, multi-modality factories estimated EUR 45 million in 2019 • Selective pricing
Slide 24: Continued focus on value creation
Continued focus on value creation 2017-2020 targets Revenue growth Margin expansion Cash generation ROIC comparable sales growth Adj. EBITA improvement Free Cash Flow in 2020 Organic ROIC in 2020 4-6% annually average annual 100 above EUR 1.5 billion mid-to-high-teens bps improvement to ~15% in 2020
Slide 25: Delivering performance
Delivering performance Abhijit Bhattacharya CFO
Slide 26: Key takeaways
Key takeaways • We are delivering on our targets of 4-6% organic growth and on average an annual improvement of 100 bps Adj. EBITA margin • We are increasing and extending our productivity program to save EUR 500 million annually for 2019 and 2020. Total planned net savings of EUR 1.8 billion for th
Slide 27: Delivering double-digit OIT growth and 4-6% CSG
Delivering double-digit OIT growth and 4-6% CSG Order Intake (OIT)1 Growth % • Gaining market share with double-digit order intake – 14% LTM order intake for D&T, strong across all 10% businesses, particularly in North America and China 6% 1% – CC&HI order intake momentum improving, strong 2016 2017
Slide 28: Sustaining growth through innovations & geographic expansion
Sustaining growth through innovations & geographic expansion Comparable Sales Growth % Guidance1 Diagnosis & Treatment • Double-digit growth in Ultrasound across modalities, e.g. CV, GI, OB/GYN and point-of-care 7% 5-7% • State-of-the-art Azurion platform in Image-Guided 4% 3% Therapy continues to d
Slide 29: Delivering ~100 bps Adj. EBITA margin improvement annually
Delivering ~100 bps Adj. EBITA margin improvement annually Adj. EBITA and Adj. EBITDA %1 15.9% 16.8% • We have delivered ~100 bps profitability 15.0% improvement annually since 2015 and are on track 13.7% to deliver in 2018 with 96 bps YTD Q3 2018 12.8% • Gross margin significantly improved, driven
Slide 30: Expanding margins through growth and productivity initiatives
Expanding margins1 through growth and productivity initiatives Diagnosis & Treatment Connected Care & Health Informatics Personal Health 14-16% by 2020 14-16% by 2020 17-19% by 2020 16.7% 17.0% 12.1% 15.6% 11.8% 11.2% 14.3% 10.4% 10.3% 9.4% 9.7% 7.9% 2015 2016 2017 Q3 2018 LTM 2015 2016 2017 Q3 2018
Slide 31: Increasing productivity program to > EUR 1.8 billion by 2020
Increasing productivity program to > EUR 1.8 billion by 2020 2017 – 2020 cumulated net productivity savings Manufacturing productivity Manufacturing footprint Overhead cost reduction Procurement savings > EUR 1.8 billion • Consolidating regional manufacturing footprint from 50 to ~30 production loca
Slide 32: Building our digital foundation - one integrated landscape
Building our digital foundation - one integrated landscape Number of ERP kernels Highlights of the program • Building an integrated digital backbone across all domains (commercial, supply chain, financial) to deliver an end-to-end 49 and seamless value chain 38 • Stepping up cloud applications and d
Slide 33: Driving ~100 basis points annual improvement up to 2020
Driving ~100 basis points annual improvement up to 2020 Compensating tariff headwinds through additional productivity Adj. EBITA %1 CMD 2016 1.0% 1.9% 0.5% (1.3)% (1.1)% ~100 bps 0.5% 1.9% 1.0% (1.1)% (1.1)% (0.1)% Actuals 12.8% 11.7% Adj. EBITA Volume Gross margin Overhead Price erosion Inflation F
Slide 34: Strongly reduced interest costs and de-risked pension liabilities
Strongly reduced interest costs and de-risked pension liabilities Interest costs on debt and borrowings 2014 – 2018 reductions in Defined Benefit Obligations (DBO)1 EUR million EUR billion 400 6.5% (19.2) 5.5% 350 5.5% 300 3.7% 4.5% 250 2.9% 27.3 3.5% (4.1) 200 2.5% 150 288 1.5% (1.1) 100 177 (0.3)
Slide 35: Focus on improving working capital
Focus on improving working capital Working capital %1,2 • Continue to focus on reduction of working capital through: – Leaning out end-to-end supply chain, 11.0% 9.9% 9.0% improving cycle time and quality – Strong focus on aged inventory 2015 2016 2017 – Reduction in number of stock points Inventory
Slide 36: Increasing Free Cash Flow generation
Increasing Free Cash Flow1 generation Free Cash Flow conversion (FCF) % • We are delivering EUR 1-1.5 billion Free Cash 128% 103% 110% Flow as per target Above 1.5 – Improved profitability – Effective working capital management • Plan to increase Free Cash Flow to above EUR 1.1 1.2 1.5 billion in 20
Slide 37: Balanced capital allocation policy
Balanced capital allocation policy Organic Return on Invested Capital1 Mergers & Acquisitions EUR billion 17.5% 17.3% 16.9% ~2.4 15.6% ~1.0 WACC ~0.5 ~0.6 7.6% ~0.2 2015 2016 2017 Q3 2018 2011 - 2014 2015 2016 2017 YTD 2018 Dividends Share repurchase EUR per share EUR billion 0.80 0.75 2.0 0.70 1.5
Slide 38: Balanced capital allocation policy
Balanced capital allocation policy Total shareholder return since 20161,2 Reinvest M&A +54% in high-return growth disciplined but more opportunities active approach +31% +6% Dividend Share repurchase aimed at dividend stability for capital reduction purposes Royal Philips TSR peer group EURO STOXX 5
Slide 39: Introducing adjusted diluted Earnings per Share
Introducing adjusted diluted Earnings per Share Adj. EPS1 definition 2015 – 2017 Adj. EPS EUR per share • Adj. EPS to be reported from Q4 2018 onwards • Adjustments for EPS: 21% CAGR – As per Adj. EBITA definition, i.e. restructuring costs, acquisition-related charges and other one- time charges and
Slide 40: Continued focus on value creation
Continued focus on value creation 2017-2020 targets Revenue growth Margin expansion Cash generation ROIC comparable sales growth Adj. EBITA improvement Free Cash Flow in 2020 Organic ROIC in 2020 4-6% annually average annual 100 above EUR 1.5 billion mid-to-high-teens bps improvement to ~15% in 2020
Slide 41: Key takeaways
Key takeaways • We have transformed into a focused global HealthTech leader • We differentiate through innovation based on consumer & clinical insights and commitment to R&D • We are driving value creation by: – Improving customer and operational excellence – Boosting growth in the core by geographi
Slide 42: Annex
Annex
Slide 43: Reconciliation of Adjusted Net Income
Reconciliation of Adjusted Net Income FY FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 in millions, except per share amounts 2015 2016 2017 2017 2017 2017 2017 2018 2018 2018 Net Income 638 1,491 259 289 423 899 1,870 124 2 292 Less: Discontinued operations, net of income taxes 479 660 131 128 160 423 843 30 -184 -15