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Royal Philips Defining The Blueprint For Treasury Best Practice

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Presentation on theme: "Royal Philips Defining The Blueprint For Treasury Best Practice"— Presentation transcript:

1 Royal Philips Defining The Blueprint For Treasury Best Practice
November 14th, 2014 DACT Treasury Beurs

2 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 2013. 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’ 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 Further information on non-GAAP measures can be found in our Annual Report 2013. Use of fair-value measurements In presenting the Philips’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 or observable market data are not readily available, fair values are estimated using valuation models, which we believe are appropriate for their purpose. Such fair value estimates 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 Annual Report Independent valuations may have been obtained to support management’s determination of fair values. All amounts are in millions of euro’s unless otherwise stated; data included are unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2013, unless otherwise stated.

3 Agenda Introduction Our transformation: Accelerate!
Defining The Blueprint Implementation in North Latam What is next

4 Philips: A strong industrial company leading in health and well being
Green Innovation R&D in 2013 € 509 million 1 51% Green Products in (% of total sales) 1 and we are unlocking value through circular economy principles 80% of our industrial waste was recycled in 14,000 tonnes of recycled materials used in products 1 1.8 billion lives improved in and we aim to improve 3 billion lives a year by 2025 €23.3 billion sales in 2013 enabled by the ~112,000 people employed Over 50% of the portfolio has global leadership positions Market reach in over 100 countries across the world More than 1/3 of the revenue from growth geographies1 €1.7 billion annual investments in innovation and ~64,000 patent rights More than 1/4 of revenues from recurring revenue streams Description of each of the awards : At Philips we set high performance targets for ourselves and we believe it is critical to report on our progress- in this slide you can see the results of our performance. We use the benchmark information and research of external indexes to help us strengthen our management systems and sustainability reporting. We are proud of the recognition we have earned for our performance over the years. Please see the website for latest awards: 2014 Top 50 Best Global Green Brand by Interbrand – Philips is fastest riser amongst technology brands in the annual ranking of the top 50 Best Global Green Brands by leading brand consultancy, Interbrand. Advancing nine places, Philips has the second largest increase of all brands and now holds the 14th position, up from 23rd last year. Practice Greenhealth Champion for Change - Philips received the 2014 “Champion for Change” Award for delivering resource-efficient healthcare solutions to our clients and assisting them in improving their environmental performance. Energy Star Partner of the year - With 370 new ENERGY STAR-qualified products, for the second year in a row, Philips continues to earn praise for our work protecting the environment through manufacturing of energy-efficient products Dow Jones Sustainability Index – Philips achieves a score of 90/100 – Best in Class score in Environmental Dimensions. Philips has maintained its membership in the Industrial Conglomerates category. CDP – Philips is one of the highest scoring companies on disclosure and performance (100 points and A-rating) Global 100 Most Sustainable Corporations in the World – Philips has been ranked number 7 on the annual list of ‘Global 100 Most Sustainable Corporations in the World’ by Corporate Knights– up 6 places from 2012. 14th position in Interbrand Global Green Brands 2014 1 Based on sustainability performance in Annual Report 2013 4


6 Philips and Citi: A Longstanding and Strategic Partnership
Global Banking Citi values the strong and longstanding relationship of over 50 years with Philips, both as partner and customer in over 55 countries Deep and broad relationship Treasury and Trade Solutions Citi serves as a long term trusted advisor for Philips, with a matching global footprint. Citi acts as one of Philips’ cash management banks Citi is a key provider of Liquidity solutions to Philips – servicing Philips’ domestic and cross-border Liquidity overlay structures Citi also has been a strategic partner in supporting Philips’ Treasury architecture goals via ISO XML & SWIFT Citi has supported Philips’ Global Supply Chain Finance program since 2009 Citi – A proud partner of Philips Citi chose Philips to help it reach its sustainability goal of achieving a 20% increase in energy efficiency by 2014 compared to 2005 Citi’s EMEA headquarters in Canary Wharf were outfitted with Philips LED light fittings Philips’ lighting solutions has delivered energy savings to Citi of approximately 45% compared to the previous installation 6

7 Agenda Introduction Our transformation: Accelerate!
Defining The Blueprint Implementation in North Latam What is next

8 Our transformation: Accelerate!
The Accelerate! change and performance improvement program is making Philips a more agile and entrepreneurial innovator. make us more customer- focused resource our business/ market combinations to win create lean end-to-end customer value chains implement a simpler, standardized operating model drive a growth and performance culture 8

9 Ensuring success is repeatable
The Philips Business System is the way we run our company to deliver on our mission and vision. It is designed to ensure that success is repeatable, i.e. that we create value for our stakeholders time after time. Manage our portfolio with granular value creation plans and resource allocation Leverage our unique strengths and assets to drive global scale and local relevance across our portfolio Be a learning organization that delivers to our customers with speed and excellence Live a growth and performance culture Create value in a repeatable manner The Philips Business System, our repeatable system to unlock and deliver value: Path to value – we define and execute business plans that deliver sustainable results along a credible Path to Value Group strategy – we manage our portfolio with clearly defined strategies and allocate resources to maximize value creation CAPs – we strengthen and leverage our core Capabilities, Assets and Positions as they create differential value Philips excellence – we are a learning organization that applies common operating principles to deliver Philips excellence 9

10 Agenda Introduction Our transformation: Accelerate!
Defining The Blueprint Implementation in North Latam What is next

11 Treasury is a highly centralized function and operates with key regional Center of Excellence

12 Philips Integrated Landscape (PIL)
SAP Group Treasury IHB1 In-house Bank and Payment Factory PF01 Payment Factory – linked to own external bank account Banks Instructions Payment files Cheques (SEPA) Direct Debits Trade and Supplier Finance Acknowledgement messaging Bank statements Billing Electronic Bank Account Management Collections Relationship management KOPLNL2E Electronic payments, Cheques & Direct Debit instructions Bank statements, exposures and manual payments Cash flow forecasting Accounting data Data analytics SAP Treasury Portal Information Factory/ Teradata Products Software Services Solutions Bank station Reporting Deal station Philips Integrated Landscape (PIL) 12

13 Agenda Introduction Our transformation: Accelerate!
Defining The Blueprint Implementation in North Latam What is next

14 A very old, unsupported and very functionality-limited IT landscape
North Latam was identified as the cluster with the higher potential improvement Long supply lead time, high risk of non-availability, excess and obsolesce Lack of transparency and suboptimal decision making Waste in order and fulfillment processes and limited flexibility Insufficient project management capabilities A very old, unsupported and very functionality-limited IT landscape Within the scope of O2F2C Long supply lead time, high risk of non-availability, excess and obsolesce due to a non-flexible legacy supply chain model largely based on push system Lack of transparency and suboptimal decision making due to silo way of working (e.g., PIPO delay, high trade stock) Insufficient service offering that does not meet customer expectation (e.g., Waste in returns/reverse logistics, inefficiency in spare part management) Insufficient project management capabilities leads to Inconsistency in delivery No Philips differentiated delivery approach North Latam Total GDP of EUR 700b Population of 120m 14

15 North Latam was challenging from Treasury point of view
What are the complexity factors Multiple banks each with different legacy formats and requirements Many legacy systems, connections and entities not on SAP platforms Moving people away from “their local solution” How can we make the difference One point of connection to all banks via treasury, leveraging on Swift Standardizing and leverage on central processing Harmonizing processes and reducing processing costs Challenges to overcome Complexity in local products and regulations Complexity in multi system environment Standardizing processes over a wide range of process 15

16 Country relevant treasury regulations
Colombia El Salvador Panama Peru Puerto Rico Focus Area Payment Factory (1)(2) Disallowed, Strictly prohibited Allowed, No major restrictions on non-residents making payments on behalf of residents. Not a common market practice Allowed, No major restrictions on non-residents making payments on behalf of residents Cross-Border POBO Allowed Allowed, No major restrictions on non-residents making payments on behalf of residents Not a common market practice Allowed, No major restrictions on non-residents making payments on behalf of residents Regulations Tax on cash transfer (4X1000) Tax on intercompany loans Withholding tax Local Currency freely convertible domestically only. Tax on intercompany loans Withholding tax Local currency freely convertible domestically and offshore No FX Control Withholding tax Local currency is freely convertible domestically and offshore Local Tax: 7% of commission (ITBMS) No FX Control Tax on cash transfer Withholding tax Local currency is freely convertible domestically and offshore No FX Control Withholding tax USD is considered local currency; no other currencies can be opened onshore. Local Currency is freely convertible domestically and offshore. No FX Control. Restrictions or Considerations (1) With POBO, liabilities for all business units are discharged by the POBO agent vs. a payment factory (e.g., SSC) , which discharges liabilities for the business unit in the name of the business unit May 21, CorporateTreasury Internal use only 16 (2) Payment Factory may trigger tax implications

17 Citi solution for countries
Solution Principle: reconcile the needs of the (local) business with Philips treasury “Reality Check”: advisory role as an integral part of solution design “One Size Fits All” One connectivity, one file format, one process Covering all payment flows (supplier payments, payroll, tax) Covering all payment instruments (local instruments, e.g. bill of exchange in Peru, network cash collections etc in addition to “standard” ACH and wires) Delivering standardised reporting of collections across channels and instruments Integration of local banks One solution irrespective of whether the invoice is settled at maturity or in advance via the supply chain finance programme Alignment to Philips’ organisational construct (e.g. Payment Factory, Centralised Treasury) Regional single window project management approach, coordinating on the ground teams, to simplify and accelerate solution implementation 17

18 Agenda Introduction Our transformation: Accelerate!
Defining The Blueprint Implementation in North Latam What is next

19 Lessons learned People on the ground know best; start the discussion in an early stage Consider materiality in of usage (cash flows) for future state products Don’t try to fix everything with IT; keep business sense (e.g. multibank sweep for local banks including bank statement) The importance of clear lines of communication, strong project governance and single co-ordination point covered in statement of work to ensure discipline and alignment What are the success factors How can we mitigate the risks Be open minded and have alternatives available Setup dedicated project team including local business and users Ensure adequate time allocated to testing cycles Operate a dual process (new and legacy solution) as part of migration cut over Training of local users Transition of current way of working – phased approach vs. big bang Project prioritization within overall projects Set up of Health Tec and Lighting Solutions company Challenges for next stage 19

20 Establishing two focused companies to capture highly attractive market opportunities
Higher growth and profitability Improved customer focus in attractive markets Faster decision making Lean overhead structure Considering options for capital market access for Philips Lighting Release capital for investments in growth 1Excluding Lifestyle Entertainment; including IG&S revenue allocation 2Including LED Components & Automotive; including IG&S revenue allocation Note - Following the completion of the divestment of the AVM&A business, prior-period financials have been adjusted (for details please refer to note 1 “Significant accounting policies” in the Q Quarterly report and Semi-annual report) Focused on the EUR 100+ billion HealthTech opportunity Serving the Health Continuum Leveraging strengths of Healthcare and Consumer Lifestyle EUR 14.8 billion sales 20131 Royal Philips Focused on the EUR 60+ billion Lighting solutions opportunity Establishing stand-alone Lighting structure EUR 8.4 billion sales 20132 LED Components & Automotive (Announced in June 2014) Philips Lighting 20

21 Appendix

22 HealthTech opportunity shaped by convergence between Healthcare and Consumer markets
Treatment Recovery Diagnosis Home Care Prevention Healthy Living Healthy Living Prevention Diagnosis Treatment Recovery Home Care Consumers increasingly engaged in their health journey Increased emphasis on population health Ongoing focus on total quality and cost of care Care shifting to lower cost settings and homes Opportunities from intersection of consumer and clinical spaces Customers expressing need for integrated solutions Systems integration, connected devices, big data and analytics Philips uniquely positioned with portfolio, insights and capabilities 22

23 Building the leader in HealthTech
Treatment Recovery Diagnosis Home Care Prevention Healthy Living Personal Care 11% Health & % Wellness Imaging Systems % Patient Care & % Clinical Informatics Home % Healthcare Solutions Healthcare Informatics, Solutions & Services Domestic % Appliances Customer Services % Share of HealthTech sales1 Strong positions across the Health Continuum Deep customer, clinical and consumer insights World-class innovation, design and marketing capabilities Systems integration, connected devices, big data & analytics, integrated solutions Trusted Philips brand 1 Sales last 12 months September2014 2 Combined Patient Care & Clinical Informatics and Healthcare Informatics, Solutions & Services (not reported separately) 23

24 Industry dynamics create opportunities in Lighting Solutions
Resulting opportunities Conventional to LED New competitors emerging Differentiation in LED systems and services Connectivity and intelligence create new growth avenues and open up adjacencies Maximize value from the golden tail Differentiate in LED through innovation in and intelligence Capture professional systems and services opportunity Establish winning connected lighting ecosystems—home and professional Philips Lighting strongly positioned as global leader in Lighting solutions market 24

25 Philips Lighting well positioned to capture growth opportunities
Components Light Sources Luminaires Systems Services LED Components Light Sources 60% & Electronics Professional Lighting Solutions % Automotive Consumer % Luminaires Share of Lighting sales1 Leading global customer and market positions World-class innovation and design capabilities Deep application and systems integration expertise Unmatched distribution strength and brand 1 Sales last 12 months September 2014 25

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