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Value creation in Professional Lighting SolutionsAmy Huntington, CEO Professional Lighting Solutions
2
• We are leading the professional market and improving our margins
• We are geared to capture attractive growth opportunities offered by the changing landscape
• We are uniquely positioned to win as we expand our systems and services offering as well as business models
• We are rigorously executing on our strategic priorities
Key takeaways
3
We are leading the professional market and improving our margins
Indexed sales2 (Philips=100) PLS¹ gross margin % development – indexed, H1'12=100
PLS¹ LED sales share vs. Market
• Leading position in Europe, Asia-Pacific3 and Latam
• #2 position in North America
• Gaining share in key growth geographies, e.g. Greater China
• Industrial footprint rationalization
• Accretive LED margin
• Portfolio rationalization
• Value engineering
• 32% sales growth in H1'13 vs. H1’12
• Geographic LED sales share:– Europe leading with 40%+– Other geographies 25%+
Competitor 1
Competitor 2
Competitor 3
0%
10%
20%
30%
40%
Q2Q1Q4Q3Q2Q1Q4Q3
20122011 2013
PhilipsMarket
#1 PLS1 player globally Leading the LED marketGross margins on positive trajectory
40%
30%
10%
0%
20%
1H20132H20121H2012
1 Philips Professional Lighting Solutions Business Group, 2 Sales in the last 4 available quarters, 3 excl. JapanSource: Philips, company financials, Philips Lighting global market study 2013
4
We are geared to capture attractive growth opportunities offered by the changing landscape
• Recognized as #1 brand1
• Margin accretive
• We are leading the LED market
LEDificationcontinued adoption
Market Trends Our Positioning
• We have a strong IP portfolio: 6,000 patents2
• Building application specific architectures and roadmap
• 42% Color Kinetics sales from products launched <18 months
Digitizationmove towards systems
• Global player with integrated offer across the value chain
• Gaining traction with Services – Professional Services, Lifecycle Services, and Managed Services
ServicesCustomer needs evolving beyond products and systems products
• Preferred lighting partner – global presence, leadership positions, innovation focus, reliable partner
• Adjacencies: Somfy – Buildings light control
• Market access: CEC3 JV - Lighting systems, China
New ecosystemsemerging
1 Based on NPS as well as Heart BEAT Brand surveys in several markets, 2 Professional Lighting Solutions related IP portfolio, 3 CEC: China Electronics Corporation
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We are rigorously executing on our strategic priorities
Unlock potential in North America
Win in LED locally, by leveraging global capabilities
Extend value proposition through systems
Develop scale in services
Accelerate!
1
2
3
4
5
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Unlock potential in North AmericaSuccessfully pursuing simplification to increase agility and leverage
Portfolio management –streamlining products & brands
Industrial footprint rationalization –setting up for the future
Innovation concentration – R&D site consolidation Driving significant procurement savings
1
• Simplified, best-in-class line to meet customers’ needs
• Eliminating redundancies without reducing overall offering
% BoM savings
# of factories# of brands
# of R&D sites
2014
-70%
2012
2012
-71%
2014
• Leveraging Monterrey greenfield facility
• Flexible capacity -volume and mix
• Coordination with Global teams – 60%+ platform penetration
• Faster decision making and innovation - 35% reduction in time to market
• Design for X (Design for X; X = cost, quality, manufacturing etc.) yielding 2X the historical bill-of-material (BoM) savings
• Spend coverage: 70%
2012
-24%
2014
20142012
>2x
Source: Philips internal study
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Win in LED locally, by leveraging global capabilities2
LED platform enabled sales % Example: GlobalSpace
0
20
40
60
80
100
OutdoorRetail & hospitality
OfficeIndustry
Healthcare
Q2 ’13Q1 ’10
0
20
40
60
80
100
Other growth
geographies
GreaterChina
NorthAmerica
Europe
By Segment By Geography
The power of platforms:• Faster design of new LED products – up to 50% reduced time to market
• Smarter platforms enable Intelligent Systems
• Greater purchasing power and reduction in working capital
• Re-use of internally developed LEDs, modules and drivers
• Reduced complexity
GlobalSpace example:• Developed in China meeting local
market needs
• Potential identified for other markets
• Regional specific versions developed
• Industrialized by global supply chain
Global-Local: Our LED platform penetration is increasing across each segment and geography
Local-Global: Local product concept can develop into global proposition
Source: Philips internal study
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Impactful OUTCOME Elegant EXPERIENCE
Eataly, Italy• Seamless integration of general
and architectural LED luminaires, luminous textiles and controls
• Design and Commissioning to meet specification of ambient retail and dining experience
• Continuing partnership in expansion plans
Extend value proposition through systems3
Dramatic EFFECT
Empire State Building, USA• 1,200 custom luminaires • Design, install and commission• Enhanced capability while
consuming 73% less energy• Grand debut in 2012 - Alicia
Keys simulcast
CityTouch: 190 projects in 27 countries in just 2 years
European municipality• LED luminaires and CityTouch
(optimized dimming calendars)• 70% energy consumption
reduced• 80% annual service cost
reduced• 29 tons of CO2 emission
prevented per yearSource: Philips internal study
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Develop scale in services4
1ROI = Return on Investment, 2SLA = Service Level AgreementSource: Philips internal study
Professional Services: enabling systems / other services sales
Lifecycle Services: variety of after sales service offerings
Managed Services: plan, build and operate lighting systems
US multi-site client• Energy management advisory
services and system• Audit, design, ROI1 analysis,
energy rebate administration• 250 locations installed,
300 additional planned• 30% reduction in electrical
spend; <3-year payback
Europe high-end retailer• 60+ locations• Audit, design, install, finance• 5 year warranty management,
maintenance contract and SLA2
• Fixed maintenance expense• Service contract value 40% of
the total project
Asian LED road lighting• 3 expressways• 3,000+ LED luminaires• 2,000+ poles• 100+ km cabling• 7 year maintenance contract• Learnings enable lifecycle
services in other deals
10
Accelerate!Successfully leveraging Accelerate! as our transformation platform
5
China facade sales targets
+235%
201520122010
-50%
20152013
# of factories
Operating model: Footprint rationalization on track
End2End: China LED Facade program on track
• Consolidate sites
• Leverage China and Mexico greenfields
• Develop flexible capacity in the industrial base – volume and mix
• I2M¹: Uni range targeting mid-tier market released (time to market reduced by 40%)
• M2O¹: Enhancing frontline competencies, further expanding the partner network
• O2C¹: Improving Customer Service level -above target for 7 months in a row
¹ I2M: Idea to Market, M2O: Market to Order, O2C: Order to CashSource: Philips internal study
Uni-Flood
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• We are leading the professional market and improving our margins
• We are geared to capture attractive growth opportunities offered by the changing landscape
• We are uniquely positioned to win as we expand our systems and services offering as well as business models
• We are rigorously executing on our strategic priorities
Key takeaways
12