Philips Consumer Lifestyle Journey

Philips Consumer Lifestyle Journey
Andrea
Andrea dea deaRagnetti
Chief Executive Officer
1

A diverse experienced international management team
6 nationalities; 20% women; 50% non-Dutch; >20 countries worked in
Elwin de Valk Andrea Ragnetti
Growth Cluster Leader
CCEO O
Previous role: General
Manager UK & Ireland
Nationality: Dutch
Worked in: Netherlands, UK,
US, Singapore
Egbert van Acht
CMO
Previous role: CMO Domestic
Appliances
Previous experience: P&G
Nationality: Dutch
Worked in: Canada, Germany, UK
Previous roles: CEO DAP and CMO
Previous experience: P&G, Reckitt
Benckiser, Telecom Italia
Nationality: Italian
Worked in: Italy, Portugal, France,
Netherlands
Paul Verhagen
CFO
Previous role: CFO Consumer
Electronics
Nationality: Dutch
Worked in: China, Hong Kong,
Netherlands, US, Taiwan
Lee Bennett
CSO
Previous Experience: Honeywell ,
VP Supply Chain
Nationality: British
Worked in: China, Japan,
Netherlands, N. America, UK
Robert Smits
BU Leader, TV
Previous Role: BU leader, ,
Shaving & Beauty
Nationality: Dutch
Worked in: Brazil, Singapore,
Netherlands
Caroline Janssen-Clarke
BU LLeader, d Sh Shaving i & BBeauty t
Previous Experience: Sara Lee,
Europe & Africa cluster Household &
Body Care Division
Nationality: British
Worked in: Netherlands, UK, USA,
Europe, Africa
Antonio Hidalgo
CTO, Innovation &
Development
Previous Experience: Mars,
VP Innovation, R&D; P&G
Nationality: Spanish
Worked in: Netherlands,
Spain, UK, USA
2

Philips p – Our businesses and our mission
Becoming the leader in Health & Well-being
Who we are Our businesses 2 Our mission
Sales approx EUR 24 billion 1
Over 30% in emerging
economies
118 118,000 000 employees
Sales and service outlets in 100
countries
Globally recognized brand
(42nd ( most valuable brand
according to Interbrand)
Our brand value has almost
doubled to $8.1bn since 2004
€1.7 billion investment in
R&D, approx 7% of sales
55,000 patent rights – 33,000
registered trademarks – 49,000
design rights
Note: 1) Last four quarters; 2) Philips indicative 2009
37% 35%
28%
Consumer Lifestyle
Healthcare
Lighting
“…a global company
of leading businesses
creating value with
meaningful
innovations that
improve people’s
health and wellbeing.”
3

Philips p is an increasingly gy strong g gglobal
brand
Sense & Simplicity drives how we work and is our promise to consumers
42
88,121 121 $ $m
Best Global Brands
"At Philips, the brand informs how we do business, from product development to
the billing department. 'Simplicity' is not just a tagline. It is a guiding principle,
which is continuously tracked externally and internally"
Geert van Kuyck, Chief Marketing Officer, Philips
Source: Interbrand 2009
4

Our consumer-driven value spaces p are an integral g
part of Philips’ Health & Well-being portfolio
Prof.
Healthcare
Healthcare Consumer Lifestyle Lighting
Home
Healthcare
Healthy
life
Personal
care
Home
livingg
Interactive
livingg
A holistic Living well well, The true
Experiences
approach to
enhancing
consumer
health
looking good
and feeling
great
home brand
for comfort,
cooking and
cleaning
free from
boundaries,
shared with
friends and
family
Consumer
Lighting
Prof.
Lighting
5

A growing g g number of leadership p ppositions
measured
by Net Promoter Score and Market Share
Gl Global b l lleader d Gl Global b l lleader d Gl Global b l lleader d Gl Global b l lleader d RRegional i l lleader d Regional R i l leader l d RRegional i l RRegional i l lleader d
Mother & Power Male Electric Coffee Food Television Leader Audio and
Child Care Toothbrush Shaving & Preparation Preparation
Peripherals & Video
Grooming
Accessories Entertainment
6

Our businesses…
An increasingly balanced portfolio
Total sales EUR 9.5 billion
1%
8%
28%
10%
1999
Domestic appliances
53%
Total sales EUR 8.5 billion
13% 6%
Shaving & beauty 14% LTM
Health & wellness
TV
Audio & video multimedia
Peripherals & accessories
5%
11%
Sep 2009
14%
37%
OEM / Licenses EBITA target of 8-10%

Strong g focus on Emerging g g Markets
38% of sales from Emerging Markets
Emerging Markets
Western Europe
North America
Other
Total sales EUR 88.5 5 billion
6%
Note: Other includes OEM and licenses
38%
12%
LTM Sepp
2009
44%

Key y takeaways y
• We have successfully reorganized, overddelivering
li i on cost t synergies i and d acting ti
decisively to address margin issues in TV.
We are coming out of the recession
stronger
• We are executing our strategy to build a
leading Health & Well-being business. We
will focus on generating g g profitable ggrowth
through the upcoming markets recovery.
The key drivers will be: investments in
Innovation and Emerging Markets
9

We have over-delivered on the 200M synergy y gy
savings from the CE / DAP merger
Simplification of organization 1 Sales & Cost Index Curve
• Increased span of control from 6-8 6 8 to10-12 to 10 12 100
• 8 layers to 4-5 layers
• 8 business units to 6
80
• 4 regional sales structures to 3 clusters
• 19 to 11 in-house operating sites
• 25 innovation centers to 11
60
• 40% reduction in executives
35% reduction in middle-management roles
28% reduction in total permanent employees 40
Note: 1) Differences between Jan 2008 – Jan 2010 (outlook)
2007
Cost Reduction Index
Sales Index
2008
2009
Outlook
Merger
10

Despite p the reorganization g
and economic conditions we
are more engaged than ever
Employee Engagement 1
65
2006
66
2007
67
2008
74
2009
Note: 2006/2007 scores are based on combined CE/DAP results
Source: 1) Employee engagement survey conducted by external consultants,
Kenexa, and compared against global benchmarks; September 2009

Television
TV: Market shares remain resilient, and in the most
critical markets show early signs of recovery
LCD market share - Western Europe LCD market share - China
20%
2008
18%
YTD
2009
16%
May 09
#2 in Western Europe
16%
Jun 09
17%
Jul 09
18%
Aug 09
18%
Sep 09
19%
Oct 09
LCD market share - Russia LCD market share - Brazil
23%
19%
16%
7%
2008
5%
YTD
2009
4%
May 09
4%
Jun 09
#2 in Russia #3 in Brazil
15%
15%
14%
14%
17%
2008 YTD May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09
2008 YTD May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09
2009
2009
Source: GFK, ZYK
19%
17%
16%
16%
5%
Jul 09
16%
5%
Aug 09
15%
4%
Sep 09
16%
5%
Oct 09
18%
12

TV: Exited unattractive markets and focused on
leadership, gross margin and profitability
Sales Revenue (EUR million)
1,500
1,000
500
0
Q1
Q2
Q3
Q4
Q1
Q2
2008 2009
Adjusted EBITA (EUR million) and Adjusted EBITA %
0
-50
-100
-150
Q1
Q2
Q3
Q4
Q1
Q2
2008 2009
Note: Adjusted EBITA is EBITA corrected for restructuring and acquisition-related charges
Q3
Q3
Sales
Television
Adjusted djus ed EBITA %
Adjusted EBITA
13

TV: We continued to take decisive action to drive
the business to structural profitability
Portfolio
Financials
Television
• Entered license partnership with Funai in the USA (August 2008).
In 2009 market shares are recovering and brand equity unaffected
• Licensed Philips Monitors to TPV Technology Ltd as of June 2009
• Will discontinue sales of fC CRT TV by QQ1
2010
• Low fixed assets together with effective working capital
management yields negative Net Operating Capital
Operations p / • Restructured manufacturing g and assembly y in Bruges g and Dreux
Supply
• Finalized restructuring of suppliers from 7 to 3 strategic partners
• Further optimizing supply model in Brazil, China and Russia
14

TV: Strategy gy
Competitive Supply Chain: Co Co-location location and Forward Integration
15

Television
TV: We partner p with LGD, Sharp p and TPV to ppioneer
new supply models
Increasingly
competitive
industrial base
Serve local
markets more
effectively
• Co-location and forward integration are essential to establish a
new level of efficiency in TV manufacturing and assembly
• Potential to leverage TPV / LGD partnership in Poland for
European market
• Sharp / Philips partnership in Manaus (Brazil) for South-American
market
16

Television
TV: European p leaders in Consumer-driven innovation
Winning prestigious industry awards and breaking sales milestones
Consumer Tests
• Winners in independent consumer testing (Stiwa)
Innovation
• EISA Awards (2 out of 5 best product awards in 2009)
awards
• IFA Press award (Best LCD TV)
• What HiFi (Best LCD TV)
Amblight sales • Increasing Amblight sales within portfolio; more than one third
success
of TV sales value in Europe
Net TV
connections
• 200,000 active Net TV surfers in 2009
17

Key y takeaways y
• We have successfully reorganized, overddelivering
li i on cost t synergies i and d acting ti
decisively to address margin issues in TV.
We are coming out of the recession
stronger
• We are executing our strategy to build a
leading Health & Well-being business. We
will focus on generating profitable growth
through the upcoming markets recovery.
The key drivers will be: investments in
Innovation and Emerging Markets
18

Strategy
In 2008 we assessed our addressable market within
Health & Well-being
EUR
900B 900
New
Current
EUR
500B
Associated Attractive
1 2 3
Is the
space
consistent
with our
brand
equity?
Is the
space
potentially
profitable
and
growing?
Advantaged
Can we
create
substantial
value?
Priority in
new
spaces
EUR
280B
Priority in
current
business
Potential market
We will lead in bringing “Sense Sense and
Prioritized
Consumer Lifestyle
Simplicity” to people
opportunities
EUR
260B
19

Strategy
In 2009 we applied pp further filters to refine and focus
our strategy
EUR
900B 900
New
Current
EUR
500B
Potential market
Consumer Lifestyle
Associated Attractive
Advantaged
Health &
Well-being Right to Win
1 2 3 4 5
Is the
space
consistent
with our
brand
equity?
Is the
space
potentially
profitable
and
growing?
Can we
create
substantial
value?
Does it
fit with
Health
and Well-
We will lead in bringing “Sense Sense and
Simplicity” to people
Does
Philips
have a
right to
being? win?
Priority in
new
spaces
EUR
115B
Priority in
current
business
EUR
260B
Prioritized
opportunities
20

We decided where to invest for growth g and what
not to pursue
Value space
Healthy
Life
Existing business
Mother & Child Care
Oral Health Care
Personal
Female depilation
Care Hair care
Home
Living
Shaving & Grooming
Vitalight
Kitchen Appliances
Beverages g
Garment Care
Floor Care
Peripherals & Accessories
Interactive
TV
Living Audio, Visual, Multimedia
Potential growth areas
Relationship Care
Lifestyle monitoring/coaching
Preventive health
Sleep
Stress
Skin care
Water
Air
Espresso
De-prioritize
Learning
Strategy
Fitness Equipment
Eye Care
HHearing i
Hands & Feet
House ware
Gardeningg
Outdoor cooking
Large kitchen appliances
21

Innovation
Despite p the crisis we continued to invest in growth g areas
Different initiatives are at different stages of investment
Water
Air
Sleep
Relationship Care
Skin Care
Lifestyle
monitoring / coaching
Stress
Preventive health
Explore Create Accelerate Expand
Note: For reasons of confidentiality innovations in phases “explore” and “create” cannot be shown
22

We focus on growth g areas through g redirection of
R&D investment and consumer centric innovation
Innovation for growth g
Markket
Stretch
Maature
Growth Emerging
Decline
High g impact p
Innovation to the
Incremental Core: 10%
Innovation to the
Core: 30%
Improved
Products
New to
Category
Innovation Stretch
New to
Philips
Growth areas:
increase from
52% to 60%
New to
the World
• Shifting further investment to Growth
• Investing in high impact innovation for the core businesses
Innovation
23

Emerging Markets
Our current strength g in Emerging g g Markets ppositions
us well for future growth
Growth
• 85% of our sales goes to middle and
higher income classes, which are
expected to grow by 8% YoY
Profitability
• The profitability of our business
(excluding TV) in Emerging markets is
almost equal to Mature markets
Brand equity • Our brand equity in BRIC is stronger
than almost all other competitors
Leadership
Investment
• We have leadership or co-leadership
positions iti iin 36% of f our PProduct d t MMarket k t
Combinations
• We are re-allocating Talents, Advertizing
and Promotion funds and R&D funds to
Emerging Markets
24

We use strategic g acquisitions q as ggrowth
levers
Saeco has transformed regional leadership into global leadership
Saeco range
Espresso full
automatic
Single serve:
espresso capsules
Single g serve capsules: p
closed systems
Single serve:
soft pod – opens systems
Multi serve: dripfilter
Instant
In-organic growth
Philips range
Market entry and
learning through
organic innovation
25

Enablers
We focus on Net Promoter Score to drive consumer
preference, willingness to pay and market share growth
Leadership: Example of Net Promoter Score in Mother & Child Care
NPS leadership in
Mother & Child Care
UK
France
Benelux
Germany
Russia
China
North America
Leader
Co leader
No leader
Drives higher
willingness-to-pay
and profitability
12%
Market
EBITA
16%
Philips’
EBITA
Drives market
share growth
3%
Market
Growth
’06-’08 06 08
5%
Philips’
Growth
’06-’08 06 08
Source: Philips NPS survey; GFK
Note: NPS leader: Net promoter score exceeds nearest competitor by >5%; NPS co-leader: Net promoter score
greater than nearest competitor by

We leverage g pprofessional endorsement as a key y
driver of consumer experience and sales
Professional endorsement: Different approaches tailored to category
Domestic Appliances: Celebrity
endorsement & advertising
JASON VALE
The juice master
Oral Care: Dentists recommendation a
key consumer claim, USA
Dentists
+17%
Drives sales growth (indexed 2006)
100
2006
111
2007
111
2008
Enablers
Ortho/Perio
+30%
114
2009
27

We use different business models to grow g by y
transforming how we bring value to our consumers
Business models: Evolving from a traditional product-based model
Enablers
Traditional Products Complementary Goods Business Beyond Products
• Product focused
• One way relationship
with consumers
• Consumable focus
• Continual consumer
relationship
• Service focus
• Intimate consumer
relationship
28

Key y takeaways y
• We have successfully reorganized, over- over
delivering on cost synergies and acting
decisively to address margin issues in TV.
We are coming out of the recession
stronger
• We are executing our strategy to build a
leading Health & Well-being business. We
will focus on generating profitable growth
through the upcoming markets recovery.
The key drivers will be: investments in
Innovation and Emerging Markets

Q&A
AAndrea d RRagnetti tti