lighting: building on strength - thinking the...

Lighting:Building on Strength - Thinking the Future

Theo van DeursenCEO Philips Lighting

November 23, 2004

Lighting 2

Agenda

• Mission, Vision & Strategy

• We improve people’s lives

• Building on Strength - securing financial results

• Thinking the Future - profitable growth

• Conclusion

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……and improve their lives with lighting

Philips Lighting: Mission statement

We understand peopleLight 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

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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

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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”

– End user driven Innovation– Marketing Excellence– Supply Excellence– Committed and competent people, living our values

Building on Strength:– China– Key Account Management – Business to BusinessThink the Future:– Consumer Electr. Applications– Solid State Lighting

Lighting Strategy Overview

On the basis of:– A learning organization (Continuous improvement)– Control of costs and assets

Ambition Strategic Challenges

Key Business Drivers

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Agenda


• We improve people’s lives– Marketing Excellence: Brand foundation– End user driven innovation



• Conclusion

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Philips Lighting: Sense and simplicity

Upgrade light-system

without interruption of the light effect

and save 30% energy

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Product

Process

Purpose

Experiences

Designed around you:End User Driven Innovation

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Easy to Experience: 2 in 1 Nightlight

Unique combination of energy saver and LED

One click: night lightTwo clicks: normal light

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International Space Station (April 2004):to improve High Intensity Discharge Lamps

together with Technical University Eindhoven

Advanced: Based on Leading edge R&DEven experimenting in non-gravity environments

Parabolic flights to test filament of halogen bulb

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# of

Pat

ent F

amilie

s

Patent Portfolio Increase 1999 – 2004: 58%

17411604

1480

130311551101

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1999 2000 2001 2002 2003 E2004

4.3%3.9%

3.3%3.0%2.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2001 2002 2003 E2004 T2005

Increasing R&D effort

Development R&D % and Size Patent Portfolio

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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 LampUHP (Ultra High Power light system for projectors)

1997 Fully recyclable fluorescent lamp1999 HiPerVision (High performance car signalling lamp)2001 Luxeon LEDs2002 Improved and smaller UHP2003 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 Lamp12 watt Extreme Ultraviolet source (for Lithography)

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Agenda



• Building on Strength – securing financial results– Financial results– China– Key account management– Business to Business– Supply excellence


• Conclusion

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Philips Lighting

2003 Q1-Q3 2004Revenues: EUR 4.5 billion 5% comparable growthEBIT: EUR 577 million,

or 12.8% of sales 13.5%Net operating capital (NOC): EUR 1.5 billionReturn on NOC 34% 37%Employees: 43,800Capital expenditure: EUR 164 million

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Philips Lighting: EBIT margin and RONA%

RONAEBIT/SALES

0

2

4

6

8

10

12

14

16

'90 '92 '94 '96 '98 '00 '02 '04Q3

0

5

10

15

20

25

30

35

40

'90 '92 '94 '96 '98 '00 '02 '04Q3

(RONA= Return on Net Operating Capital)

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Philips Lighting 2003 Sales by Region

Europe46%

Asia23%

Americas31%

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Lamps50%

Automotive & Special Lighting

16%

Lighting Electronics

16%

Luminaires18%

Philips Lighting – Sales per Business Group

2003

Direction of allocation of

Capital Expenditures

30%

60%

Total Sales to thirds: EUR 4.5 billlion

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Not served

Not served

W. Europe L. America Japan

Lamps

Luminaires

Light. Elec.

Automotive

Asia/PacificN. America TotalE. Europe

Not Applicable

SpL.

46%

29%

15%

7%

Size of market as % of world 38% 22% 7% 32%

3%

100%

2003 Market Position # 1

Philips position

# 2 or 3 < # 3

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Lamps2004 vs. 2003 (Q1-Q3) Market shareComparable growth 2003

Brazil 5% 32%

C & E Europe 12% 27%

China 8% 14%

India 13% 36%

PD LightingComparable sales growth in Emerging markets

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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

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Continuous profitable sales growth in China

0

100

200

300

400

500

600

'96 '97 '98 '99 '00 '01 '02 '03 Exp'04

Total LightingIndex based on USD

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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

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China: Increasingly innovative

• Increasing local innovation resources: from 110 engineers in 2003 to 250 in 2007

• Today: Shanghai Global Competence center for Compact Fluorescent

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Growth partnerships with leading (global) Key Accounts

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660

850

1090

1250

0

200

400

600

800

1000

1200

1400

1990 1995 2000 Exp.2004

EU

R m

lnInternational Key Account Management drives sales top Key Accounts Philips Lighting

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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

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The change

Today 5% penetration in shops

Miniaturization:Lead to increasing # of light points

Resulting in acceleration of growth: 10% pa in value

Mini-Master Colour

Strength in Business to Business:Philips market leader with MasterColour CDM

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Supply Excellence

• Impeccable quality: – Towards “0” ppm level

• Integrated demand and supply planning– suppliers customers

• High delivery reliability - Quick response

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%

80.0

85.0

90.0

95.0

2001 2002Q1

2002Q2

2002Q3

2002Q4

2003Q1

2003Q2

2003Q3

2003Q4

2004Q1

2004Q2

2004Q3

2005 2006 2007

Target

Supply ExcellenceDelivery Reliability: complete & on time Lighting Total

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Lighting IT Costs: ERP systems installed

50

60

70

80

90

100

110

120

'99 '00 '01 '02 '03 Exp'04

Index based on EUR mln

Further investment in IT to include supplier and customer in supply chain management, and to support account management and global R&D

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10

12

14

16

18

20

22

'95 '96 '97 '98 '99 '00 '01 '02 '03

Continuing Inventory Reduction as % of Sales

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in mln EUR Turnover rate

PD LightingWorking Capital 1996 - 2004

500

550

600

650

700

750

800

850

900

950

1,000

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

9Average Working Capital Turnover rate

1996 1997 1998 1999 2000 2001 2002 exp ‘042003

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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

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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

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-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0

12.0

15.0

Nominal

Comparable

1996 1997 1998 1999 2000 2001 2002 2003 Q32004

Average GrowthNominal 1.8%Comparable 2.2%

Philips Lighting Sales growth %

We will accelerate profitable growth, breaking away from historic pattern

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Agenda




• Thinking the Future - profitable growth– Automotive, Special Lighting & UHP – Solid State Lighting

• Conclusion

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