Accelerating Healthcare Ingo Bank, CFO Philips Healthcare
Name Jefferies Global Healthcare Conference, New York June 4th, 2013
Important information 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 2012. 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’s financial position, operating results and cash flows, management uses certain non-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 2012. Further information on non-GAAP measures can be found in our Annual Report 2012. 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 do not exist, we estimated the fair values using appropriate valuation models, and when observable market data are not available, we used unobservable inputs. They 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 2012 financial statements. Independent valuations may have been obtained to support management’s determination of fair values. All amounts in millions of euro’s unless otherwise stated; data included are unaudited. Financial reporting is in accordance with IFRS, unless otherwise stated.
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• We are driving profitable growth and delivering on our commitments
• Health care industry is dynamic, growing, and profitable
• Health care systems are transforming and our innovations address the trends
• Accelerate! is driving customer centricity, operational excellence, and a growth and performance culture
• While we are facing increasing headwinds, we remain committed to reach our financial targets this year
Key takeaways
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occur in growth geographies
Health care industry dynamics will drive demand
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Sharp rise in incidence of chronic disease and non-communicable lifestyle diseases Globally, 36 million of the 57 million deaths due to chronic and non-communicable disease
Approximately 80% of non-communicable disease deaths—29 million—occur in growth geographies An aging population World’s population of people 60 years+ has doubled since 1980 and is forecast to reach 2 billion by 2050 Access to care and clinician shortage Recognized as one of the main obstacles to delivery of effective health services
Source: World Health Organization data and statistics http://www.who.int/gho/ncd/mortality_morbidity/en/index.html, http://www.who.int/features/factfiles/ageing/en/index.html, and http://www.who.int/workforcealliance/media/qa/01/en/
0
500
1000
1500
2000
1980 2010 2050 (Est.)
World population age 60+ (Millions)
Causes of death globally (2008)
Growth Geographies
Deaths from all other causes
21 million
36 million
Deaths from chronic and non-communicable diseases
80%
Transforming healthcare landscape provides opportunity for innovation
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Innovative, minimally invasive therapies Enables shorter lengths of stay, faster recovery, improved outcomes, and lower cost treatment Data, information, and connected solutions across the care continuum Bring together solutions across the ecosystem to help diagnose disease, improve adherence to protocols, and improve clinical outcomes Improve quality of care at a lower cost Consulting solutions with value products improve clinical workflow, improve health system effectiveness, and lower costs Extending into lower cost settings including the home Lower risk of hospital-borne illness, patients comfortable at home, reducing the cost of care Wellness and preventive care Empower individuals to take care of their health and help people stay healthy
Philips Healthcare Guiding Statement
We are dedicated to creating the future of health care and saving lives. We develop innovative solutions across the continuum of care in partnership with clinicians and our customers to improve patient outcomes, provide better value and expand access to care.
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= Market position = Customer satisfaction
Strong market and satisfaction leadership positions
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Sleep therapy
Respiratory care
Home monitoring telecare North America
Home Healthcare Solutions
#1 #1 #1
Imaging Systems
Interventional X-Ray cardiovascular
Image-Guided interventions
Ultrasound worldwide
Overall system performance IMV ServiceTrak
CT MDBuyline
MR Ingenia and Ultrasound iU22 Best in KLAS
NPS Interventional X-Ray-India, North America, Japan, and China
NPS Ultrasound-North America, United Kingdom, and China
#1
#1
Patient Care and Clinical Informatics
Patient monitoring
AEDs
Digital telemetry
Non-invasive ventilation
Enterprise Imaging North America and LatAm
Cardiology Imaging North America
Clinical Informatics Brazil
NPS Patient Monitoring-North America, United Kingdom, Germany, China, and India
NPS PCCI-global
#1 #1 #1 #1 #1
#1
#1
#2
#1
#1
#1 #1
#1 #1
Source: National benchmarks, COCIR, NEMA, GSS Market Intelligence Estimate, IMV rated ServiceTrak, Frost and Sullivan, HHS TBS, PCCI market insight. Market Size data excludes Customer Service
#1
2013….. Performance
Strong OIT and sales growth Successful market launches Investments in R&D and
growth geographies Industrial footprint in growth
geographies Strategies to address market
headwinds in Southern Europe and Japan Kick-off Accelerate!
Valu
e
EBITA
2011 Performance
Gro
wth
EBITA
Setting the foundation to improve performance
Transform Philips through Accelerate! • Value delivery from past acquisitions • Upgrade marketing capabilities • Improve sales force productivity • Create performance and growth culture • Increase value segment portfolio in
Imaging • Continue to close gap in co-leadership
in Imaging • Grow consulting services business
Gro
wth
2012 Performance
Drive operational excellence through Accelerate! Deliver return on investment on
growth and innovation investments Reduce overhead, cost of
complexity Leverage industrial footprint in
growth geographies Gain share, extend leadership in
Patient Care and Clinical Informatics Drive international growth and
improve patient interface market position in Home Healthcare Solutions
Accelerating performance improvement
Gro
wth
EBITA
Progressing on our Path-to-Value
8 = Areas of ongoing focus in 2013
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Strong market positions in growth and mature geographies In
€ b
illion
3,0
2,0 1,0
0,0
+22%
Growth markets
2012 2011 2010 2009
• China, LatAm and other growth geographies delivering strong top line growth reflecting solid market positions and ongoing investments
• Growth Geographies share of total revenue now 24%
• Western Europe stable despite ongoing difficult market circumstances
• North America growing in an environment of policy changes and uncertainties
1 2012 percentages are the CAGR’s (Compound Annual Growth Rates) realized from 2009 to 2012 for Philips Healthcare
1
In €
billi
on 2,0
1,0
0,0
+18%
Other mature markets
2012 2011 2010 2009
In €
billi
on 3,0
2,0 1,0
0,0
0%
Western Europe
2012 2011 2010 2009
In €
billi
on 6,0
4,0 2,0
0,0
+5%
North America
2012 2011 2010 2009
1
1
1
Philips Healthcare growing at 8% CAGR nominal
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786 1,129 1,080 1,226 1,246
10.0%
13.1%
12.2% 12.3% 12.6%
10.6%
14.0%
12.4%
13.6% 13.9%
FY 2009 FY 2010 FY 2011 FY 2012 LTM March2013
EBITA Restructuring & PMIEBITA % Adj. EBITA %
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EBITA profitability rebounded in 2012
• Strong growth providing operating leverage
• Executed restructuring program : eliminate layers and lower overheads
• Investments in innovation and growth geographies ongoing to maintain growth momentum
• Operational efficiency programs driving margin improvement – Bill of Material savings – Service parts cost reductions – End-to-End physical distribution
cost reduction – Reduced non-growth and non-
innovation spend by >10%
Key drivers influencing margin expansion in 2012
1 EBITA has been restated to account for IAS 19R Pension restatements
Reported & Adjusted EBITA EUR millions, as % of sales 1
10
Strong inventory improvement and cash flow generation
1 Free cash flow is defined as cash flow from operating activities minus net capital expenditures 2 Free cash flow and Reported EBITA have been restated to account for IAS 19R Pension restatements from 2009 - 2012
EUR billions, as % of sales
• > 60% y-o-y improvement in FCF in 2012
• Earnings and working capital management driving highest free cash flow generation – ever
• Earnings/FCF ratio back to targeted levels
320 bps y-o-y improvement in 2012: – Improved our Sales & Operations planning
process; business-market handshakes; eliminating waste and buffers in process
– Increased share in vendor-managed inventory
Net inventory as % of sales Free cash flow as a % of reported EBITA1,2
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EUR billions, as % of EBITA
1.1 1.3 1.3 1.6 1.8 1.7 1.8
17.0% 17.6%
16.8%
18.3%
20.0%
16.8%
18.6%
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Q1 2013
Inventory As % of moving annual total sales
0.5 1.0 0.8 1.1 0.8 1.3 1.4
55%
117%
100% 100%
74%
105% 113%
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 LTM2013FCF FCF as % of EBITA
March
March 2013
Net Operating Capital % shown as a % of total NOC
Solid improvement in ROIC in 2012
Notes: EBIAT are earnings before interest after tax; Philips calculates ROIC % as: EBIAT/NOC Quarterly ROIC % is based on LTM EBIAT and average NOC over the last 5 quarters Reported tax used to calculate EBIAT; 2011 ROIC has been adjusted to exclude the impairment of goodwill charge taken in 2011 and the impact of IAS19R
ROIC
• Growth and margin expansion driving 200bps y-o-y improvement in 2012
• Targeting further improvements in line with mid-term performance objectives
Some 80%+ of invested capital is Intangibles – Margin expansion and growth continue to be key drivers
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Goodwill
Tang. assets Other assets
Intangible assets
~20%
~80%
Return on Invested Capital
0%
2%
4%
6%
8%
10%
12%
2009 2010 2011 2012 Q12013
Investing in productivity
Deployment of a single value-added layer; standardized organizational design for businesses and markets
Increasing the effectiveness of Sales support functions
Industrial footprint and Overheads
• Consolidate 40 business lines into 10 Business Innovation Units
• Increased span of control and eliminated two layers to improve End2End collaboration between businesses and markets
• Portfolio decisions to address gross margins • Overhead and business support functions performed
at only one single value-added level • Finance and HR transformation
• Established Sales Support Centers to drive scale benefits for back office and commercial support functions
• Accelerated deployment of digital marketing – shifting spend mix – increase effectiveness of Marketing spend
We have invested €116M in restructuring with an expected payback of ~2 years 13
Operational excellence will continue to drive profitability
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HCC
LCC
2012
~13%
2009
~8%
LCC MOH as a % of total MOH1
• Growing our share of LCC sourcing • Bill of Material Savings • Cost of Non-Quality
• Expanding manufacturing volumes in growth geographies
• Improving productivity – Lean, End2End • Service parts cost innovation • Distribution costs (landed cost)
Priorities
1 MOH = Manufacturing Overheads
Low-cost-country sourcing (LCC)
Percentages represent low-cost purchasing value in % of total purchasing value
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Philips Healthcare Path-to-Value
2012 EBITA1
12.3%
Growth Operational Efficiency
Overhead Cost
reductions
Investments Med. Dev. Tax
2013 EBITA
Lower Restructuring
1 2012 EBITA has been restated to account for IAS 19R Pension restatements 15
17%
15%
• We are driving profitable growth and delivering on our commitments
• Health care industry is dynamic, growing, and profitable
• Health care systems are transforming and our innovations address the trends
• Accelerate! is driving customer centricity, operational excellence, and a growth and performance culture
• While we are facing increasing headwinds, we remain committed to reach our financial targets this year
Key takeaways
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