Koninklijke Philips N.v. · EURONEXT:PHIA
Koninklijke Philips — Investor Day (2016)
41 slides from Koninklijke Philips's investor day presentation, 2016
Slide 1: Company update and performance roadmap
Company update and performance roadmap Frans van Houten CEO Royal Philips Abhijit Bhattacharya CFO Royal Philips
Slide 2: Key takeaways
Key takeaways • Philips has transformed into a differentiated global HealthTech leader delivering innovative healthcare technology at the point of care, leveraging deep clinical and consumer insights • We lead in attractive growth markets and profit pools • We create value for customers and sharehol
Slide 3: Philips: a focused leader in HealthTech
Philips: a focused leader in HealthTech
Slide 4: Philips has transformed into a focused HealthTech leader
Philips has transformed into a focused HealthTech leader A platform for profitable growth 2011 2012 2013 2014 2015 LTM 2016 - Lifestyle - TV + Volcano - Lighting (IPO) Entertainment Sales 25.3Bn Sales 17.2Bn CSG 2% CSG 5% Adj. EBITA 4.7% Portfolio Transformation Adj. EBITA 10.9% 2% 19% 31% Actuals 4
Slide 5: Our ~EUR 17 billion HealthTech portfolio addresses global markets
Our ~EUR 17 billion HealthTech portfolio addresses global markets More than 1/4th of sales from recurring revenue streams Segments (share of revenues)1 Geographic presence2 Diagnosis & Treatment Enabling efficient, first time right diagnosis and Western Growth North precision therapies through digit
Slide 6: Our markets have sustained growth and attractive profit pools
Our markets have sustained growth and attractive profit pools HealthTech market size1 Growth drivers EUR billion ~185-190 • Population growth, ageing and rise in chronic diseases 60-61 Market Growth • United Nations SDG 3 – boosting access to care ~145 (2015–2019) • Shift to outcome based reimbursem
Slide 7: Our strong portfolio has >60% of sales from leadership positions
Our strong portfolio has >60% of sales from leadership positions1 Diagnostic Imaging Ultrasound Image-Guided Therapy Smart Catheters Global Top 3 Global Leader Global Leader Global Leader Diagnosis & Treatment Patient Monitoring ICU Remote Monitoring Non-invasive Personal Emergency High-end Radiolog
Slide 8: Health continuum guides our strategy
Health continuum guides our strategy Healthy living Prevention Diagnosis Treatment Home care Care pathways for Cardiology, Oncology, Respiratory, etc. Trends such as digital, population health, accountable care support our vision Our innovation strength in professional healthcare and personal health
Slide 9: We deliver differentiated solutions to drive better outcomes and productivity
We deliver differentiated solutions to drive better outcomes for people and higher productivity for care providers Healthy living Prevention Diagnosis Treatment Home care Connected products and Integrated modalities and Real-time visualization & Connected therapeutic services supporting the health c
Slide 10: Our innovations result from deep clinical collaborations and R&D programs
Our innovations are a result of deep clinical collaborations with universities & hospitals and advanced R&D programs Commitment towards innovation Examples of collaborative clinical co-creation • Annual spend of ~EUR 1.7 billion for research & development – ~20% breakthrough innovation – ~50% new pr
Slide 11: Our innovations and brand are internationally acclaimed
Our innovations and brand are internationally acclaimed Largest patent applicant with ~2,400 European patent applications (2015) China Business Network (CBN) China Innovation Best Practice Award (2016) Design Excellence • 37 Red Dot Design awards (2016) • 48 iF design awards, with Gold for Lumify Ul
Slide 12: We have a rich talent base, strong values and commitment to innovate
We have a rich talent base, strong company values and a deep commitment to innovate LinkedIn – Global ~35,000 Our mission Top 1% people certified in Improving lives Talent Attractors LEAN courses through meaningful innovation ~10,000 1.1 million 120+ engineers, Our values hours of people nationaliti
Slide 13: Experienced management team driving growth, operational excellence and value creation
Experienced management team driving growth, operational excellence and value creation CEO / CFO Segment Leaders Market Leaders Function Leaders CEO Personal Health Global Markets1 Innovation Frans van Houten Pieter Nota Ronald de Jong & Strategy Jean Botti Operations Sophie Bechu Diagnosis & North A
Slide 14: Sustainability is an integral part of how we do business
Sustainability is an integral part of how we do business Success of EcoVision 2015 program Recent accomplishments • 54% of sales from Green Products in 2015 Industry Group Leader in 2016 • 41% reduction in carbon footprint in 10 years • 2 billion lives improved 3rd consecutive year of leadership in
Slide 15: Strategic drivers for continued growth and improved profitability
Strategic drivers for continued growth and improved profitability
Slide 16: Key drivers for our value creation
Key drivers for our value creation Accelerate! Focus on Driven by Resulting in Better serve 1. 1 Continue ‘self help’ journey to improve • Productivity: lower cost customers quality, operational excellence and productivity of goods and non- and improve manufacturing costs productivity 2. 2 Continue
Slide 17: Continue 'self help' journey to improve quality, operational excellence and productivity
1 Better serve customers and Continue ‘self help’ journey to improve quality, improve productivity operational excellence and productivity • Operational excellence by applying the Philips Business System • Continuous improvement, leveraging Philips Excellence practices Excellence • ‘Design for Quali
Slide 18: Continue to lead the digital transformation
2 Better serve customers and Continue to lead the digital transformation improve productivity Emergency response Patient outcomes Digital workflows Predictive analytics …unlocking Connected superior value customers for customers (examples) Connecting 4 million sleep #1 Cardio 1 billion+ patients eld
Slide 19: Capture geographic growth opportunities
3 Boost growth in core Capture geographic growth opportunities business Leadership in key geographies North America Greater China Global Markets1 Examples of geographic expansion plays • Scale Diagnostic Imaging • Capture growth in private • Grow integrated solutions hospitals partnerships with lead
Slide 20: Pivot to consultative customer partnerships and business models
4 Boost growth in core Pivot to consultative customer partnerships and business business models From transactional to continuous engagement model Common business goals Predictability, Shared risk Customer Multi-year engagement Philips Continuous improvement Reduced costs; Outcomes focused • Leading
Slide 21: Drive innovative value-added, integrated solutions
5 Build winning solutions along Drive innovative value-added, integrated solutions the health continuum Better value for customers, higher margins, recurring revenue models Examples Solutions revenues and growth EUR billion Total cardiac + + 11% CAGR1 7 procedure 5 4 solutions Interventional Smart t
Slide 22: Portfolio extensions through organic investments, partnerships and M&A
6 Build winning solutions along Portfolio extensions through organic investments, partnerships and M&A the health continuum Growth investments in new business Partnering for integrated solutions Successfully delivering on M&A • Leadership in Digital Pathology; strengthened with acquisition of Path X
Slide 23: Building Philips to EUR 20 billion sales with significantly improved returns
Building Philips to EUR 20 billion1 sales with significantly improved returns… … Focus on Resulting in Medium-term financial outlook 2 Sales, EUR billion • Productivity: lower cost Better serve customers of goods and non- 4-6% CAGR and improve manufacturing costs 20 productivity • Growth enablers in
Slide 24: Building Philips' leadership in solutions for better outcomes and productivity
… and building Philips’ leadership in solutions, driving better outcomes for people and higher productivity for care providers Healthy living Prevention Diagnosis Treatment Home care Connected products and Integrated modalities and Real-time visualization & Connected therapeutic services supporting
Slide 25: Driving performance improvement
Driving performance improvement
Slide 26: Key takeaways
Key takeaways • We are now a focused HealthTech company delivering growth and improving profitability • We are delivering on our DfX program and introducing new products to improve gross margins • Our cost reduction program is resulting in tangible benefits visible in the P&L • Strong Balance Sheet
Slide 27: Personal Health consistently driving strong performance
Personal Health consistently driving strong performance Delivering above market growth and margins CSG % (LTM1) • We have delivered a consistent track record of above market growth • Growth has been driven by: 6% 6% – Geographic expansion 5% 5% 4% – Innovation led new product introductions Q3'15 Q4'
Slide 28: Driving operational excellence in D&T to improve profitability
Driving operational excellence in D&T to improve profitability Stepping up performance, Volcano integration ahead of plan CSG % (LTM) • IGT and Ultrasound on good performance track • Overall profitability beginning to improve with improvement of the CT performance • Excellent integration of Volcano
Slide 29: Return to growth and improving profitability in CC&HI
Return to growth and improving profitability in CC&HI CSG % (LTM) • Expand Patient Monitoring across care settings with clinical analytics to drive high-single digit growth • New businesses to start generating revenue growth 4% 5% 4% • Around EUR 100 million invested in innovation for 0% 0% continuo
Slide 30: Gross margins and non-manufacturing costs driving improved profit
Gross margins and non-manufacturing costs driving improved profit Adj. Gross margin1 Adj. G&A1 Adj. NMC1 44.6% 36.1% 44.2% 35.7% 3.6% 2.8% Q3'15 Q3'16 Q3'15 Q3'16 Q3'15 Q3'16 • Step up in gross margins led by: • Significant G&A reduction arising from • Overall reduction of non- – New product introdu
Slide 31: Royal Philips: Improving performance
Royal Philips1: Improving performance Delivering mid-single-digit sales growth and improving earnings CSG % (LTM) • Growth driven by: – Innovative new products and solutions – Geographic expansion 5% 4% 4% 4% – Growth in adjacencies 3% • Good potential for profit improvement through: Q3'15 Q4'15 Q1'
Slide 32: Strong actions to improve working capital
Strong actions to improve working capital 100bps or more improvement in inventories, overdues and working capital Inventory1 • Inventory 17.9% 2015 17.2% 17.3% – Leaning out end-to-end supply chain, improving cycle time and quality – Strong focus on aging and excess inventory 16.2% 2016 15.7% 14.7%
Slide 33: Ongoing actions to drive balance sheet efficiency
Ongoing actions to drive balance sheet efficiency Reduction of pension liability and high interest bonds Pension DBO, Philips incl. Lighting (EUR B) • Pro-active de-risking actions to reduce Group defined benefit obligations (DBO): 27.1 – De-risking of the Dutch pension plan 1.1 – Settlement of the
Slide 34: Free Cash Flow Conversion and ROIC continue to improve
Free Cash Flow Conversion and ROIC continue to improve Restructuring profile for HealthTech is significantly lower than the combined Group Free Cash Flow Conversion1 (EUR, M) Return on Invested Capital2 (ROIC) Restructuring costs in bps of sales ~151% 193 14.1% ~124% 12.5% 12.1% 11.3% 1,050 11.4% 11
Slide 35: Productivity initiatives of EUR 1.2 billion to drive 100 bps annual improvement
Productivity initiatives of EUR 1.2 billion to drive 100 basis points annual improvement over the mid-term1 Adj. EBITA step-up drivers Main drivers Indicative Adj. EBITA margin, % • Operating leverage in selling expenses and R&D ~0.5 • Gross margin improvement: ~1.3 – Manufacturing footprint optimiz
Slide 36: Disciplined capital allocation policy
Disciplined capital allocation policy • Continue to invest in high ROIC organic growth opportunities to strengthen each business • Disciplined but more active approach to M&A, while continuing to adhere to strict return hurdles • Committed to a strong investment grade credit rating • Dividend policy
Slide 37: Building Philips to EUR 20 billion sales with significantly improved returns
Building Philips to EUR 20 billion1 sales with significantly improved returns Medium-term financial outlook • Mid-single-digit growth rate (4-6%) • Performance improvement driven by: • On average 100bps Adj. EBITA margin improvement annually – Operational excellence and growth in • Cash generation o
Slide 38: Key takeaways
Key takeaways • We are now a focused HealthTech company delivering growth and improving profitability • We are delivering on our DfX program and introducing new products to improve gross margins • Our cost reduction program is resulting in tangible benefits visible in the P&L • Strong Balance Sheet
Slide 39: Key takeaways
Key takeaways
Slide 40: Key takeaways
Key takeaways • Philips has transformed into a differentiated global HealthTech leader delivering innovative healthcare technology at the point of care, leveraging deep clinical and consumer insights • We lead in attractive growth markets and profit pools • We create value for customers and sharehol
Slide 41: PHILIPS
PHILIPS ES a I, NS