Financial Value Creation
Stewart McCroneCFO Philips LightingCFO Philips Lighting
73
Key takeawaysKey takeaways
We are a stronger company due to• We are a stronger company due to measures taken in the last two years; 2010 expected be a record year for2010 expected be a record year for Lighting
Th Li hti k t i t t• The Lighting market is set to grow, driven by LED. We will are ready to grow sales expand margins creategrow sales, expand margins, create value
7474
Acted fast in the downturn Benefiting from salesActed fast in the downturn. Benefiting from sales rebound /lower cost base. Heading for record yearSales-driven leverage and lower break-even point driving EBITA improvement
Improving profitability, sustainably lower cost
€ Mln
20%
300
200
30%
€ Mln• Sales up 15% first half year
2010
• Last twelve months10%
0%
100
0
• Last twelve months adjusted EBITA running at over 11 % of sales
F ll 2010 fi d t
-20%
-10%
-200
-100
Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
• Full year 2010: fixed cost savings will lower breakeven point by around 2.5% of EBITA margin
Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
2008 2009 2010
Adjusted EBITA as % of SalesRestructuring and M&A related charges
75
Comparable sales growthAdjusted EBITA as % of Sales
EBITARestructuring and M&A related charges
Sales recovery despite current weakness in theSales recovery despite current weakness in the luminaires (fixtures) market in mature economiesAround 25% of Philips Lighting sales driven by New Build in Western Europe & North America (WE&NA)
Not yet firing on all cylinders: sales recovery despite soft luminaires market in mature economies
Philips Lighting New Build
Replace-ment Total
30
20
% comparable sales growth
Residential 12% 13% 25%
Commercial 30% 22% 52%
Other 17% 6% 23% 10
10
0
Total 59% 41% 100%
Q4Q3Q2Q1 Q1 Q2
-20
-10
Q4Q3
2008 2009 2010
Professional & Consumer Luminaires
New Build WE&NA ROW Total
Residential 7% 5% 12%
Commercial 18% 12% 30%
76
Total lightingLamps and other businesses Commercial 18% 12% 30%
Total 25% 17% 42%
Portfolio View: all businesses back to growth andPortfolio View: all businesses back to growth and profitability in 2010 Lumileds* 2010*
Adjusted EBITA %
Lamps
Professional Luminaires
Other businesses
Comparable Sales G th %
77
Growth %
Growth vs. profitability for Jan-June 2010; Bubble size represents sales* Lumileds bubble is out of the scale due to large sales growth and hence represented manually in the chart
Lumileds strongly contributing to Philips Lighting valueLumileds strongly contributing to Philips Lighting valueIncreased success in and focus on illumination
Strong sales growth with adjusted EBITA > 20%
Illumination sales growing rapidly
LTM illumination sales indexed LTM sales $ Mln
Illumination design-in wins increasing
Quarterly illumination design-in wins
800
growth1$ y g
indexed growth2
400
600
200
400
Q2 ’10Q2 ’09Q2 ’080
Q2 ’10Q2 ’09Q2 ’08 Q3 09 Q2 10Q1 10Q4 09
781.Q2 2008 as base2.Q3 2009 as base
Streamlining and reducing cost: bold measuresStreamlining and reducing cost: bold measures paying off, significant savings still to come
400 • Restructuring primarily to
Positive and structural impact on our business
Restructuring charges/savings€ Mln
0
200
400 • Restructuring primarily to reduce production capacity, mainly of traditional lighting t h l i h
-200
0 technologies such as incandescent
• 70% of restructuring
-600
-400 charges will translate into future savings
• Significant part of charges -800
Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
2008 2009 2010
still to be converted to future annual savings
• Restructuring ~1.5% of
79
Cumulative charges
Cumulative savingsChargesSavings
70% of cumulative charges
g %sales in 2010 and 2011
Cash invested in working capital structurallyCash invested in working capital structurally reduced; healthy cash flow to fund future growth
WC % f LTM S lWorking Capital
EBITA % lLTM FCF
€ Mln € Mln
LTM free cash flow1 as % of LTM salesNet working capital as % of LTM sales
25%
20800
1.200
1.000
WC as % of LTM Sales25%2015
900
600
LTM FCF % LTM salesEBITA % sales€ Mln € Mln
5
15
10
800
600
400
200
510
0
600
3005
0
200
0Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
-5-100
Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
2008 2009 20102008 2009 2010 008 009 0 0008 009 0 0
• Reductions in working capital are structural, not short term opportunistic term actions• Lower levels of overdue receivables from customers
Better payment terms across the board
80
• Better payment terms across the board
1. Free cash flow is defined as cash flow from operating activities minus net capital expenditures.
M&A in Luminaires & Controls gaining tractionM&A in Luminaires & Controls gaining tractionYr Company Business & Rationale Integration1 Synergies2 Growth3
’07 Color Kinetics Key player in LED technology Done
’08 Genlyte North American presence Done
’09 Ilti Luce LED Architectural Done
Selecon Entertainment Lighting
Dynalite Building Controls
Teletrol Multi site Controls
’10 Luceplan Designer fixtures
Amplex Street Lighting Controlsp g g
Burton Medical fixtures
Professional L minaires 1Integration means whether the integration into Philips Lighting is on trackProfessional Luminaires
Lighting Controls
Consumer Luminaires
1Integration means whether the integration into Philips Lighting is on track2Synergies mean whether synergies are being realized as assumed before acquisition3Growth means whether the acquired companies’ sales develop as assumed before acquisition
81
Key takeawaysKey takeaways
Th Li hti k t iThe Lighting market is set to grow driven byset to grow, driven by LED. We will are ready yto grow sales, expand
i t lmargins, create value
82
Value creation: grow sales expand marginsValue creation: grow sales, expand margins
Grow top-line sales, drive profitability t 12 14% t d EBITA
Global illumination market
€ Bln
to 12-14% reported EBITA
Grow in LED: invest to win
80Grow the Luminaires business
Invest in emerging markets
U d i th h hi h i
20152010
Upgrade mix through higher price realization in LED categories
Optimize the lifecycle of our
Conventional lightingLED lighting
conventional lighting portfolio
Move to next level in pricing and margin management tools
CAGR of 7-9%, assuming
nominal GDP growth of ~4%
83
Source: Philips Lighting global market study 2009, updated for 2010
margin management toolsgrowth of 4%
Innovation spend increasingly focused on LEDGrow sales
Innovation spend increasingly focused on LED products & solutions
W f R&D dR&D d i t 4 5% f l We focus our R&D spend on LED/digital technologies
R&D spend remains at 4-5% of sales; set to increase in absolute value
R&D spend categorized by technologyR&D spend, R&D as % of sales
8% of salesR&D spend
57%65%
75% LED / Digital
7100
5
6
43%35%
25% Conventional
2009 201120104
5
02009200820072006 2010
84
2009 Actual
2011Outlook
2010Outlook
2009200820072006 2010
LED adoption driven by strong total cost ofGrow sales
LED adoption driven by strong total cost of ownership advantage and legislation
E ffi i t l * ( % f t t lT t l C t f O hi (TCO) i
80%Example 1: LED Master for
t il t i SiExample 2: LuxSpacef h t l i E
Energy efficient sales* (as a % of total sales) heading to over 60%
Total Cost of Ownership (TCO) is becoming increasingly attractive
40
80%retail stores in Singapore
263
for hotels in Europe
Savings vs. Conventional
1,000 €
590 Savings vs. Conventional
1000 pcs/ 1,000 €
0201120 1020092008-69%
over 3-years
321
-46%over 5-6 years
• EU: All incandescent lamps to be phased out by end of
81Legislation driving energy efficient lighting sales
payback
1 year
• EU: All incandescent lamps to be phased out by end of 2013.
• US: Incandescent ban in effect from Q1 2011
• Other markets: Incandescent ban effective from Q1 4W Philips
Master (LED)35W
Halogen (Conv )
Fugato (Conv.)
LuxSpace (LED)
85
2011 across Russia and Brazil and Turkey(Conv.)
Energy cost Maintainance costInitial cost * Last 12 months to end of Q2 in year shown
Grow luminaires and controls business through M&AGrow sales
Grow luminaires and controls business through M&ACreate scalable platforms to optimize go-to-market, maximize margin
Continue to acquire in a fragmented luminaires and controls market
Leverage the upturn in mature markets construction when it comes
Use lighting controls to
Customized solutions: tailor made solutions addressing specific
10
W. Europe (Euro construct)
maximize margin and controls market comes
% change
Use lighting controls to intelligently monitor and control street lighting and tie together into a centralized streetlight
addressing specific needs of a customer
Platform for 10
-5
0
5
ResidentialNon Residentialcentralized streetlight
management systemapplications and solutions: platforms that can be rolled out across segments and
-15
-10
03 04 05 06 07 08 09e 10e 11e 12e
Non ResidentialTot. Construction
U.S. Non-residential construction
Use lighting controls in energy management, building automation
ggeographies
Standard products: wide range of
500
600
700
800
01020304050
building automation, architectural lighting, home automation, and residential solutions.
standard products that can be rolled out across segments and geographies
300
400
500
2002 2004 2006 2008 2010 2012-40-30-20-10bn. 2005$ (left)
ann. % ch (right)
Sources: BEA, Global Insight (GI), NEMA/BIS sim. of GI macro model
86
Luminaires and solutions ~70% of the lighting market and share is growing
Sou ces , G oba s g (G ), / S s o G ac o ode
We are investing – and winning – in emergingGrow sales
We are investing and winning in emerging markets
Emerging markets as a % of sales We focus our marketing spend on
42800
€ Mln
g gis growing
g pgrowth areas
38
40
42800
700
60026
34
65
34
36
38500
400
30054
45
30
32
34200
10015 15
30Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
2008 2009 2010
2010Outlook
2009Actual
87
% of sales in emerging marketsEmerging markets sales
North AmericaEMEA
Asia pacificLatin America
Upgrade mix through higher price realization in LEDExpand margins
Upgrade mix through higher price realization in LED categories
Strong growth in our LED sales across Europe in professional channels
Strong position in large European markets
We are the LED market leader in FranceProfessional LED Lamps sales Europe • We are the LED market leader in France, Germany and Italy2
Professional LED Lamps sales Europe
+348%1
88
Q2 10Q2 09
2 .Based on GfK Professional panel1 .Sales growth YTD Q2 2010 vs YTD Q2 2009
Continue to streamline our organization towards aExpand margins
Continue to streamline our organization towards a less capital-intensive footprint
Further simplification of footprintNumber of sites
• Developments over the last 12 months:− 16 sites closed− 1 site divested− 2 sites added by acquisition of business− Reduction in warehouse infrastructure
underway
Cumulative restructuring savings on track to exceed € 200 Mln in 2010
Future20102009
Conventional
89
2011201020092008Luminaires & LED
Optimize profitability of conventional portfolioExpand margins
Optimize profitability of conventional portfolio businesses
Adjusted EBITA %2009* 2010*
High IntensityLamps
2009 2010
FluorescentTube
p
High CompactFl t
Incandescent/Halogen
CompactFluorescent
High IntensityLamps
Fluorescent
Halogen
FluorescentTube Incandescent/
Halogen
• Optimal management of production capacity and overhead cost• Continual purchasing savings to drive bill of material down
Comparable Sales Growth %
Halogen
90
• Product portfolio management• Smart price and channel management
* Figures for January - June each year, bubble size represents sales value
Move to next level in price and margin managementExpand margins
Move to next level in price and margin management tools
L t ti f i t l F th h i i dLeverage next generation of integral profit & portfolio management tools
Further enhance pricing processes and smart IT solutions
Country Xy
91
Key takeawaysKey takeaways
We are a stronger company due to• We are a stronger company due to measures taken in the last two years; 2010 expected be a record year for2010 expected be a record year for Lighting
Th Li hti k t i t t• The Lighting market is set to grow, driven by LED. We will are ready to grow sales expand margins creategrow sales, expand margins, create value
9292
93