Lighting: Building on Strength - Thinking the Future Theo van Deursen CEO Philips Lighting November 23, 2004
Agenda Mission, Vision & Strategy We improve people s lives Building on Strength - securing financial results Thinking the Future - profitable growth Conclusion Lighting 2
Philips Lighting: Mission statement We understand people Light is a visible form of energy It pushes back the night Welcomes the weary Protects those you love Banishes monsters from under beds Makes eyes sparkle and improve their lives with lighting Lighting 3
Philips Lighting: Vision statement To be recognized by all our stakeholders as The Clear Leader; Setting the pace in the lighting industry the best partner to do business with the best company to work for the best company to invest in a responsible citizen contributing to the sustainability of society at large Lighting 4
Lighting Strategy Overview Ambition Profitable Growth: In developing markets With leading global customers In existing markets In new segments Recognized by our stakeholders as The Clear Leader: Setting the pace in the industry Key Business Drivers End user driven Innovation Marketing Excellence Supply Excellence Committed and competent people, living our values Strategic Challenges Building on Strength: China Key Account Management Business to Business Think the Future: Consumer Electr. Applications Solid State Lighting On the basis of: A learning organization (Continuous improvement) Control of costs and assets Lighting 5
Agenda Mission, Vision & Strategy We improve people s lives Marketing Excellence: Brand foundation End user driven innovation Building on Strength - securing financial results Thinking the Future - profitable growth Conclusion Lighting 6
Philips Lighting: Sense and simplicity Upgrade light-system without interruption of the light effect and save 30% energy Lighting 7
Designed around you: End User Driven Innovation Experiences Purpose Process Product Lighting 8
Easy to Experience: 2 in 1 Nightlight Unique combination of energy saver and LED One click: night light Two clicks: normal light Lighting 9
Advanced: Based on Leading edge R&D Even experimenting in non-gravity environments International Space Station (April 2004): to improve High Intensity Discharge Lamps together with Technical University Eindhoven Parabolic flights to test filament of halogen bulb Lighting 10
Development R&D % and Size Patent Portfolio 5.0% 4.5% 4.0% Increasing R&D effort 3.9% 4.3% 2000 1800 1600 Patent Portfolio Increase 1999 2004: 58% 1480 1604 1741 3.5% 3.0% 2.5% 2.0% 1.5% 2.8% 3.0% 3.3% # of Patent Families 1400 1200 1000 800 600 1101 1155 1303 1.0% 400 0.5% 200 0.0% 2001 2002 2003 E2004 T2005 0 1999 2000 2001 2002 2003 E2004 Lighting 11
Philips Lighting - Recent Innovations 1994 CDM MasterColour (high efficacy and white light colour) 1995 Low mercury fluorescent lamp TL5 (narrow diameter fluorescent) Xenon Automotive Head Lamp UHP (Ultra High Power light system for projectors) 1997 Fully recyclable fluorescent lamp 1999 HiPerVision (High performance car signalling lamp) 2001 Luxeon LEDs 2002 Improved and smaller UHP 2003 Night-light (hybrid LED-Compact Fluorescent) 2004 Mini CDM MasterColour (white light mini-spots) LED-modules (building blocks for luminaires) Night-guide car light (more-non-blinding-light, better reflection) Mercury free Xenon Automotive Head Lamp 12 watt Extreme Ultraviolet source (for Lithography) Lighting 12
Agenda Mission, Vision & Strategy We improve people s lives Building on Strength securing financial results Financial results China Key account management Business to Business Supply excellence Thinking the Future - profitable growth Conclusion Lighting 13
Philips Lighting 2003 Q1-Q3 2004 Revenues: EUR 4.5 billion 5% comparable growth EBIT: EUR 577 million, or 12.8% of sales 13.5% Net operating capital (NOC): EUR 1.5 billion Return on NOC 34% 37% Employees: 43,800 Capital expenditure: EUR 164 million Lighting 14
Philips Lighting: EBIT margin and RONA 16 EBIT/SALES 40 RONA 14 35 12 30 10 25 % 8 20 6 15 4 10 2 0 '90 '92 '94 '96 '98 '00 '02 '04 Q3 5 0 (RONA= Return on Net Operating Capital) '90 '92 '94 '96 '98 '00 '02 '04 Q3 Lighting 15
Philips Lighting 2003 Sales by Region Asia 23% Europe 46% Americas 31% Lighting 16
Philips Lighting Sales per Business Group 2003 Automotive & Special Lighting 16% Lamps 50% Lighting Electronics 16% 30% 60% Direction of allocation of Capital Expenditures Luminaires 18% Total Sales to thirds: EUR 4.5 billlion Lighting 17
2003 Market Position Philips position # 1 # 2 or 3 < # 3 Size of market as % of world 38% 22% 7% 32% 100% Lamps W. Europe E. Europe N. America L. America Japan Asia/Pacific Total 46% Luminaires 29% Not served Not served Not Applicable Light. Elec. 15% Automotive 7% SpL. 3% Lighting 18
PD Lighting Comparable sales growth in Emerging markets Lamps 2004 vs. 2003 (Q1-Q3) Market share Comparable growth 2003 Brazil 5% 32% C & E Europe 12% 27% China 8% 14% India 13% 36% Lighting 19
China: a fast expanding market Large market potential Philips #1 player in China We create and extend distribution with 100+ preferred partners Internet enabled: supplies, inventories, cash We extend into Mid-end of the market with dedicated products Track record of profitability Lighting 20
Continuous profitable sales growth in China Total Lighting Index based on USD 600 500 400 300 200 100 0 '96 '97 '98 '99 '00 '01 '02 '03 Exp'04 Lighting 21
China: a vast supply base Access to vast supply base via fast growing China Sourcing Group (From USD 100 mln in 2004 to over USD 600 mln in 2007) Business Groups have 8 factories our leading edge assembly of UHP projection systems Lighting 22
China: Increasingly innovative Increasing local innovation resources: from 110 engineers in 2003 to 250 in 2007 Today: Shanghai Global Competence center for Compact Fluorescent Lighting 23
Growth partnerships with leading (global) Key Accounts Lighting 24
International Key Account Management drives sales top Key Accounts Philips Lighting 1400 1200 1090 1250 EUR mln 1000 800 600 400 200 660 850 0 1990 1995 2000 Exp.2004 Lighting 25
Strength in Business to Business: Olympic Games 2004 Athens 28 out of 33 venues (85%) with Philips Lighting Partnering with: Government & Municipality Olympic Committee TV Broadcasters International Sport Federations Lighting 26
Strength in Business to Business: Philips market leader with MasterColour CDM The change Today 5% penetration in shops Mini-Master Colour Miniaturization: Lead to increasing # of light points Resulting in acceleration of growth: 10% pa in value Lighting 27
Supply Excellence Impeccable quality: Towards 0 ppm level Integrated demand and supply planning suppliers customers High delivery reliability - Quick response Lighting 28
Supply Excellence Delivery Reliability: complete & on time Lighting Total 95.0 Target 90.0 % 85.0 80.0 2001 2002 Q1 2002 Q2 2002 Q3 2002 Q4 2003 Q1 2003 Q2 2003 Q3 2003 Q4 2004 Q1 2004 Q2 2004 Q3 2005 2006 2007 Lighting 29
Lighting IT Costs: ERP systems installed Index based on EUR mln 120 110 100 90 80 70 60 50 '99 '00 '01 '02 '03 Exp'04 Further investment in IT to include supplier and customer in supply chain management, and to support account management and global R&D Lighting 30
Continuing Inventory Reduction as % of Sales 22 20 18 16 14 12 10 '95 '96 '97 '98 '99 '00 '01 '02 '03 Lighting 31
PD Lighting Working Capital 1996-2004 in mln EUR Turnover rate 1,000 950 Average Working Capital Turnover rate 9 8.5 900 8 850 7.5 800 7 750 6.5 700 6 650 5.5 600 5 550 4.5 500 1996 1997 1998 1999 2000 2001 2002 2003 exp 04 4 Lighting 32
Continuous Improvement: Business Excellence in Philips Lighting All metrics show ample room for improvement Applying model from European Foundation for Quality Management we measure our progress: from 600 points today towards 700 in next two years Business Balanced Scorecards: focus on essentials Improve Business processes through: Systematic deployment of breakthrough plans Black Belts Green Belts Process Survey Tools Quality Improvement Competition: from 30 towards 40 % participation Lighting 33
Conclusion We improve people s lives Marketing Excellence: Brand foundation End user driven innovation Building on strength securing financial results China Key account management Business to Business Supply excellence Room for improvement In all our business processes In Margin and NOC turns But especially in accelerating profitable growth Lighting 34
We will accelerate profitable growth, breaking away from historic pattern Philips Lighting Sales growth % 15.0 12.0 9.0 Average Growth Nominal 1.8% Comparable 2.2% 6.0 3.0 0.0-3.0-6.0-9.0 Nominal Comparable 1996 1997 1998 1999 2000 2001 2002 2003 Q3 2004 Lighting 35
Agenda Mission, Vision & Strategy We improve people s lives Building on Strength - securing financial results Thinking the Future - profitable growth Automotive, Special Lighting & UHP Solid State Lighting Conclusion Lighting 36