Royal Philips
Defining The Blueprint For Treasury Best
Practice
November 14th, 2014
DACT Treasury Beurs
1
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 forwardlooking 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 2013. Further information on nonGAAP 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
2013. 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.
Agenda
1. Introduction
2. Our transformation: Accelerate!
3. Defining The Blueprint
4. Implementation in North Latam
5. What is next
3
Philips: A strong industrial company leading in
health and well being
Green
Innovation
R&D in 2013
51% Green Products
in 2013 (% of total sales) 1 and we are
unlocking value through circular economy
principles
€ 509 million 1
80%
of our industrial
waste was recycled
in 2013 1
14,000 tonnes
of recycled
materials
used in products 1
1
4
1.8 billion
14th position
lives improved
in 2013 1 and we aim
to improve 3 billion
lives a year by 2025
in Interbrand
Global Green
Brands 2014
Based on sustainability performance in Annual Report 2013
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
6
 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
Agenda
1. Introduction
2. Our transformation: Accelerate!
3. Defining The Blueprint
4. Implementation in North Latam
5. What is next
7
Our transformation: Accelerate!
The Accelerate! change and performance improvement program is making
Philips a more agile and entrepreneurial innovator.
make us more
customerfocused
8
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
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.
9
1.
Manage our portfolio with granular
value creation plans and resource
allocation
2.
Leverage our unique strengths and
assets to drive global scale and local
relevance across our portfolio
3.
Be a learning organization that
delivers to our customers with speed
and excellence
4.
Live a growth and performance
culture
5.
Create value in a repeatable manner
Agenda
1. Introduction
2. Our transformation: Accelerate!
3. Defining The Blueprint
4. Implementation in North Latam
5. What is next
10
Treasury is a highly centralized function and
operates with key regional Center of Excellence
11
Philips Integrated Landscape
Group Treasury
Banks
KOPLNL2E
SAP
IHB1
In-house Bank
and Payment
Factory
Electronic payments, Cheques
& Direct Debit instructions
PF01
Payment
Factory –
linked to own
external bank
account
Bank statements, exposures
and manual payments
Treasury
Portal
SAP
Products
Software
Services
Solutions
Bank
station
Deal
station
Philips Integrated Landscape (PIL)
12
12
Cash flow
forecasting
•
Instructions
•
Payment files
•
Cheques
•
(SEPA) Direct Debits
•
Trade and Supplier
Finance
•
Acknowledgement
messaging
•
Bank statements
•
Billing
•
Electronic Bank Account
Management
•
Collections
•
Relationship
management
Accounting Data analytics
data
Information Factory/
Teradata
Reporting
Agenda
1. Introduction
2. Our transformation: Accelerate!
3. Defining The Blueprint
4. Implementation in North Latam
5. What is next
13
North Latam was identified as the cluster with
the higher potential improvement
Long supply lead time, high risk of nonavailability, 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
14
North Latam
• Total GDP of EUR 700b
• Population of 120m
North Latam was challenging from Treasury
point of view
15
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
Country relevant treasury regulations
Colombia
El Salvador
Panama
Peru
Disallowed, Strictly
prohibited
Allowed, No major
restrictions on nonresidents making
payments on
behalf of residents.
Allowed, No major
restrictions on nonresidents making
payments on
behalf of residents
Allowed, No major
restrictions on nonresidents making
payments on
behalf of residents
Not a common
market practice
Cross-Border POBO
Allowed
Not a common
market practice
Tax on cash
transfer (4X1000)
Tax on
intercompany loans
Withholding tax
Tax on cash
transfer
Tax on
intercompany loans
Withholding tax
Puerto Rico
Regulations
Payment Factory (1)(2)
Focus
Area
Withholding tax
Local Currency
freely convertible
domestically only.
Restrictions or
Considerations
Local currency
freely convertible
domestically and
offshore
No FX Control
Local currency is
freely convertible
domestically and
offshore
Local Tax: 7% of
commission
(ITBMS)
Withholding tax
Local currency is
freely convertible
domestically and
offshore
No FX Control
No FX Control
Allowed, No major
restrictions on nonresidents making
payments on
behalf of residents
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.
(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
in theCorporateTreasury
name of the businessInternal
unit
May 21,unit
2014
use only
16
(2) Payment Factory may trigger tax implications
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
17
Agenda
1. Introduction
2. Our transformation: Accelerate!
3. Defining The Blueprint
4. Implementation in North Latam
5. What is next
Lessons learned
What are the
success factors
•
•
•
•
How can we
mitigate the risks
Challenges for
next stage
19
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
•
•
•
•
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
Establishing two focused companies to capture
highly attractive market opportunities
Royal Philips
Philips Lighting
• Higher growth and
profitability
Focused on the EUR 100+ billion
HealthTech opportunity
Focused on the
EUR 60+ billion Lighting
solutions opportunity
in attractive markets
• Faster decision making
• Lean overhead structure
Serving the Health Continuum
Leveraging strengths of
Healthcare and Consumer
Lifestyle
• Improved customer focus
Establishing stand-alone
Lighting structure
LED Components & Automotive
(Announced in June 2014)
• Considering options for
capital market access for
Philips Lighting
• Release capital for
investments in growth
EUR 14.8 billion sales 20131
1Excluding
20
EUR 8.4 billion sales 20132
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 Q2 2014 Quarterly report and Semi-annual report)
Appendix
21
HealthTech opportunity shaped by convergence
between Healthcare and Consumer markets
Healthy
HealthyLiving
Living
Healthy
Living
Consumers
increasingly
engaged in their
health journey
Prevention
Prevention
Diagnosis
Diagnosis
Increased
emphasis on
population
health
Treatment
Treatment
Ongoing
focus on
total quality and
cost of care
Recovery
Recovery
Home Care
Home
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
Building the leader in HealthTech
Healthy Living
Healthy
Living
Prevention
Prevention
Personal Care 11% Health &
Wellness
Domestic
Appliances
16%
Diagnosis
Diagnosis
7% Imaging Systems
Treatment
Treatment
23%
Recovery
Recovery
Patient Care &
152%
Clinical Informatics
Home Care
Home
Care
Home
10%
Healthcare
Solutions
Healthcare Informatics, Solutions & Services
Customer Services
18%
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
2
23
Sales last 12 months September2014
Combined Patient Care & Clinical Informatics and Healthcare Informatics, Solutions & Services (not reported separately)
Industry dynamics create opportunities in
Lighting Solutions
Industry dynamics
Resulting opportunities
•
Conventional to LED
•
Maximize value from the golden tail
•
New competitors emerging
•
•
Differentiation in LED systems and services
Differentiate in LED through innovation in
and intelligence
•
Connectivity and intelligence create new
growth avenues and open up adjacencies
•
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
Philips Lighting well positioned to capture growth
opportunities
Components
LED Components
Automotive
Light Sources
Light Sources 60%
& Electronics
Luminaires
Systems
Professional Lighting Solutions
Consumer
Luminaires
6%
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
25
1
Sales last 12 months September 2014
Services
34%
26
26