Koninklijke Philips' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Koninklijke Philips Electronics N.V. (PHG)

Q1 2012 Earnings Conference Call

April 23, 2012 4:00 AM ET

Executives

Abhijit Bhattacharya – Head, IR

Frans van Houten – CEO

Ron Wirahadiraksa – CFO

Analysts

Andreas Willi – JP Morgan

Simon Smith – Credit Suisse

Peter Reilly – Deutsche Bank

Ben Uglow – Morgan Stanley

Ludovic Debailleux – Natixis Securities

Gael De Bray – Societe Generale

Martin Prozesky – Sanford Bernstein

Olivier Esnou – Exane BNP Paribas

Phil Wilson – Redburn

William Mackie – Berenberg Bank

Andrew Carter – Royal Bank of Canada

Presentation

Operator

Welcome to the Royal Philips Electronics First Quarter Results 2012 Conference Call on Monday, 23 rd of April 2012.

During the introduction hosted by Mr. Frans van Houten, CEO; and Mr. Ron Wirahadiraksa, CFO, all participants will be in a listen-only mode. After the introduction, there will be an opportunity to ask questions. (Operator Instructions).

Please note that this call will be recorded and is available by webcast on the website of Royal Philips Electronics.

I will now hand the conference over to Mr. Abhijit Bhattacharya, Head of Investor Relations. Please go ahead, sir.

Abhijit Bhattacharya

Good morning, ladies and gentlemen. Welcome to this conference call on the first quarter of 2012 for Royal Philips Electronics.

I am here with the Philips’ CEO, Mr. Frans van Houten; and our CFO, Ron Wirahadiraksa.

In a moment, Frans will take you through his introductory remarks and provide an update on our performance. Ron will shed more light on the details of the financial performance during the quarter. After this, both Frans and Ron will be happy to take your questions.

As usual, our press release and the accompanying information slide deck were published at 7 AM Central European Time this morning. Both documents are now available for download from our Investor Relations website. We will also make available a full transcript of this conference call on the Investor Relations website by tomorrow at the latest.

With that, let me hand over to Frans to start proceedings for the day.

Frans van Houten

Thanks, Abhijit. Welcome and thank you for joining us today for our first quarter 2012 earnings conference call.

The end of the first quarter marks the completion of my first year as CEO of Philips. And as I reflect on my tenure this far, I am pleased with the progress that we have made over the last year. It remains clear that Philips has a wealth of talent, great assets, a strong brand, a global footprint, we operate in the right markets and have the right portfolio to address key global trends, and a large majority of our businesses have the right fundamentals for profitable growth. Yet, our performance does not match our potential. In order to address this disparity, we designed and launched our change in improvement program Accelerate! which is aimed at reigniting organic growth in Philips, and making us an agile entrepreneurial innovator.

I’m happy to report that we are now seeing solid improvement across all sectors of our business and our growth figures for the first quarter confirm this trend, with Healthcare growing at 9%, Consumer Lifestyle growth businesses above 7%, and Lighting at 2%. Excluding external sales of Lumileds, which saw a double-digit decline in the quarter, due to inventory correction in the channel and an increasing mix of internal sales, our Lighting business actually grew by 4% in the quarter. LED product sales for the quarter grew by 22%, and if we were to exclude Lumileds even by 50%.

As one of the work streams within the Accelerate! program we are reducing the overhead cost structure of the company and we made good progress and are on track with these plans. In the first quarter of this year, we reduced cost by about EUR37 million and that is on top of the EUR25 million which we reduced in the fourth quarter of last year. The Accelerate! program’s cost reduction initiative specifically targets the overhead cost structure of the company. That means that when these costs are removed they will not come back despite top-line growth. We are not cutting cost into core customer value chain of the company, as typically if you cut cost there you end up cutting R&D investments, which drive future growth of the company. So to make Philips a profitable growth company, we reduced overhead cost, while investing more into core customer value chain, especially in innovation and customer-phasing resources, and that drives higher value creation for Philips. Besides this, we are also executing on our plans to address the industrial footprint of, among others, our traditional Lighting business.

On the portfolio front, the end of the first quarter marks a very important landmark for the future of Philips. We have successfully completed the Television joint venture deal with TPV, and the new company is TP Vision. TP Vision will be a strong player in the global TV market and it will ensure the continuity of the Philips TV brand. TP Vision will leverage the strengths of the Philips brand, innovation power and trade relationships with the additional scale and manufacturing strength of TPV from Taiwan. The TV partnership with TPV enables Philips to further focus on expanding market leadership positions across our Healthcare, Consumer Lifestyle and Lighting sectors.

Another key element in the Accelerate! Program is to engrain a performance culture across Philips. We know that that will take time, but we are convinced that we need to invest significantly in this area and we see people responding positively already. To date, around 200 of our leaders have been through a behavior change program. This is an immersive three-day program that has been very impactful. The top 800 of the company are actually slated to go through this program by the end of this year. We also conducted our Leadership Summit in February this year, where the top 250 leaders were physically present and another 500 were attending through a live webcast. The response has been very encouraging and this summit was instrumental in driving the Accelerate! actions deeper into the organization.

In the post-Summit survey which we typically do, 99% of the respondents confirm that they have clarity on what they need to do to accelerate performance of their respective businesses. In order to check that the Accelerate! program is in fact cascading down the organization, we also run surveys among 4,000 employees every quarter and the scores indicate that good progress is being made. Details related to this progress are disclosed in the Q1 information deck. At the same time, I want to emphasize that Accelerate! is a multiyear program and much remains to be done to unlock our full potential.

Let’s now discuss the changes in the Executive Committee of Philips. As we previously announced in March, we appointed Eric Rondolat as Chief Executive Officer of Lighting and a Member of the Executive Committee of Philips. Eric has an impressive international career, covering both mature and growth geographies. Most recently, Asia-Pacific and based in China. Eric brings a wealth of experience from the energy management solutions industry. We are confident that he will be able to lead Philips through the industry transformation and emerges the winner in energy efficient LED-based lighting solutions. I am also pleased that in Deborah DiSanzo, we have a worthy successor to Steve Rusckowski. Actually, I’d like to reiterate that I wish Steve well in his future endeavors and I’m thankful to him. Deborah will takeover as the new CEO of Healthcare and also join the Executive Committee of Philips. With Deborah, we have found a strong leader for Healthcare within our own organization. She has a proven track record in the Healthcare industry and has grown the Patient Care & Clinical Informatics, the PCCI business, to become the global market leader in patient monitoring. I am sure that she will be a catalyst in accelerating our Healthcare business.

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