Driving Profitable Growth Financial Update Ingo Bank CFO Philips Healthcare
1
Financial update Topics for discussion
• Healthcare’s performance – Growth – Earnings – Cash flow – Focus on return on invested capital
• Driving margin expansion • Japan update • Key takeaways
2
Sales growth bouncing back in 2010, coupled with solid earnings improvement Full year nominal and comparable sales growth (comparable adjusted for currency and portfolio) Sales in EUR millions
EBITA reported EUR million, %
Comparable growth
Nominal growth
1,300 10,000
20% 1,200
15%
15%
8,000 10%
11%
10%
1,100
13.8
13.9
1,000
6,000 4%
4,000
6%
2%
3%
5%
900 800
0% 700 2,000
-5%
-3%
7,649
7,839
8,601
8,751
0
-10%
2008
2009
2010
LTM Mar 2011
11.0
10.8
600 839
848
1,186
1,218
2008
2009
2010
LTM Mar 2011
500
3
Free cash flow generation remains strong Increased earnings as major driver for strong FCF
Adjusted net working capital as % of LTM sales (1) EUR million Adj. net working capital
Free cash flow (2) EUR million
As a % of LTM sales
1,250
FCF
FCF as % of sales
EBITA as % of sales
13.8
15% 12.9
13.3
13.3 12.7 13.7
1,000 12.8
750
10.6 12.3
12.1
12.5%
11.0 10.1
10.8
500 250
6.9
0
10% Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2010
Q4
Q1 ‘11
671
669
459
1,017
846
1,181
2005
2006
2007
2008
2009
2010
• Working capital stable as we continue to grow sales – 2010 equipment inventory turns improved by 7% over 2009 • Working capital management will stay an ongoing focus 1) Net working capital adjusted to exclude forward currency contract assets/liabilities. 2) Free cash flow is defined as cash flow from operating activities minus net capital expenditures.
4
Significant improvement of ROIC Around 85%of invested capital is Intangibles – Margin expansion and growth are key drivers Net operating capital As a % of total NOC
ROIC Bubble size represents EBITA
8%
2010 Realization
2010 Indication
Other assets
Tang. assets
~ 15%
Intangible assets
6%
~ 85% Goodwill
2009
2008 4% 0.85
0.9
0.95
1
December 2010
NOC turnover (1) 1) NOC turnover calculated as sales divided by net operating capital. 5
Strong order book supporting our growth plans Typical profile of equipment order book conversion to sales
Indexed Equipment Order Book Development
~30%
2008
2009
2010
‘11
Q+1
~35%
Q+2 to 4
~35%
>1 year
Quarter end equipment order book is a leading indicator for ~45% of sales the following quarters Equipment book and bill sales Equipment sales from order book Leading indicator of future sales Home Healthcare + Customer Services sales 6
We will continue to improve operating margins Programs
Objectives
Optimize Market Approach
• Continuing to implement value based pricing and deliver cost innovation • Further strengthening of value segments across geographies
Supply Base Optimization
• Consolidating industrial footprint & ERP systems • Increase LCC Sourcing & Bill of Material cost reduction • Improved Inventory Turns
Integrated Customer Service
Progress
• Realizing service parts material cost-savings • Driving delivery of standard processes and tools
Customer Value Chain
• Simplifying and standardizing business processes • Rationalizing commercial business centers
Functional Excellence
• Delivering best in class IT, HR and Finance function support to our operations 7
Supply Base optimization progressing well – challenges around BoM savings and LCC sourcing Increasing cost reduction (% of BoM Savings)
Strategic priorities Consolidation footprint to 13 Primary CME’s Expanding mfg. volumes in growth geographies BoM savings…commodity prices increasing Strategic Supplier Consolidation Continuing investment in Lean / Six Sigma Growing our share of LCC sourcing
2009
Implementing Lean Manufacturing – 13 CME’s
2011
2012
Improving productivity (amount in EUR millions)
Locations without Lean programs 100%
2010
Manufacturing costs as % of BoM costs
Locations with Lean Programs
75% 50%
Mfg. cost improvement 20+%
25% 0% 2009
2010
2011
2012
2008
2009
2010
2011
2012 8
Update Japan situation • All of our 1,700 employees are safe and addressing the tragic situation with admirable resilience • Visibility of impacted suppliers is complex and changing due to aftershocks and rolling blackouts • Modest impact on our Tier 1 and Tier 2 suppliers in Japan • Some Tier 3 ++ suppliers of electronic and assembly material to the health care industry are affected • We are progressively managing the effects with emphasis on mitigation plans • Possible revenue headwinds in the 2nd half of 2011
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Key takeaways • Solid financial performance setting the foundation for accelerated growth • Operational excellence programs are on track to help us expand our margins
• ROIC improvement will continue to be driven by our growth and capital efficiency programs
Anne: Pls Add image and highlight text in Key (I added key (to be consistent ) takeaways See example Lighting below
