Company Analysis Philips Lighting

EY Knowledge
January 2011

Executive Summary
 The lighting market stands at the beginning of the LED revolution, leading to tremendous technical changes and related changes to lightings business model. Through innovation and acquisitions, Philips has positioned itself to embrace the new lighting revolution. Philips has taken steps up the value chain into luminaires, since luminaires play an important role in the new LED lighting value chain. The next step to create more added value, is for Philips to develop new lighting solutions. To be able to offer solutions, Philips has to develop new service offerings and new ways of financing these. The other growth engines in lighting are the key growth markets. Philips needs large investments, mainly in sales and distribution, but also in new product development to grow sales in these markets. To support margins, Philips is restructuring its traditional lighting value chain with facility closures and other cost savings on the one hand, and pricing strategies on the other hand. The main challenge for Philips is to remain on top of all new developments and manage all investments, while keeping profitability on acceptable levels during the economic cycle.
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The lighting market is extremely dynamic. We see the global shift to energy efficient lighting solutions and the rapid adoption of LED accelerating our growth. Emerging market expansion continues and we expect to capitalize on the positive long-term trends in those markets. Against this backdrop, we are strongly positioned to solidify our global leadership through delivering unique customer segment applications and solutions while leveraging our strong position in conventional lighting. Rudy Provoost, CEO Philips Lighting.

January 2011

Lighting Margins have improved considerably

Sales  Lighting sales have seen a dip from the recession, that has mainly been caused by a dip in the industrial markets: automotive and construction markets.  Recent sales growth has mainly come from new energy efficient lighting solutions and from the key growth markets.
Sales in mln euro

2,000 1,500 1,000 500 0 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410

Margins  In order to improve its margins throughout the cycle, Philips has taken measures: 15%  Cost reductions, eliminating fixed costs at a run 10% rate of 3% per quarter. 5%  Restructuring of traditional light source 0% manufacturing facilities.  The result can be seen in 2010, with the EBITA margin -5% coming in over 10%. -10%

Lighting Margin

Lighting Working Capital in mln euro

1,500 Working Capital  Philips Lighting is working hard to reduce working capital. Measures include:  Lower levels of overdue receivables from customers.  Better payment terms across the board. 1,000 500 0 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410

January 2011

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Philips Lighting Analysis

Lighting Overview
Simply enhancing life with light
(mln ) Sales EBITA EBITA margin Employees 2010 7.552 869 11,5% 53.888 2009 6.546 145 2,2% 51.653 2008 7.362 480 6,5% 57.367

 Philips Lighting is dedicated to introducing innovative end-user-driven and energy-efficient solutions and applications for lighting, based on a thorough understanding of the customer needs, both in public and private context.  Philips Lighting maintains sales and service organizations in over 60 countries and runs manufacturing operations in some 25 countries over the world, including the Netherlands, Belgium, France, Germany, the UK, Poland, the USA, Mexico, Brazil, India, Indonesia, Thailand, China and South Korea.  Philips serves businesses (automotive, office lighting, etcetera) and consumer homes.

Divsional Segmentation 2010

Packaged LEDs 7% Lamps & Electronics 51%

Automotive 8% Cons Luminaires 6%

Prof Luminaires 28%

Geographic Segmentation sales 12 months June 2010

N-America 26% Asia Pac 28% Latin America 6% Europe Africa 40%

 Lighting operates in eight businesse areas:  Lamps. From traditional incandescent lightbulbs to modern energy efficient lighting.  Lighting Electronics. Controls for the lighting solutions.  Professional Luminaires. Complete lighting fixtures for businesses.  Consumer Luminaires. Complete lighting fixtures for consumers.  Automotive.  Solid State Modules.  Lumileds.  Special Lighting Applications.

January 2011

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Philips Lighting Analysis

Lighting Organisational Structure

CEO Rudy Provoost Per 07-05-09, Including recent changes

Businesses Lamps Ren van Schooten Lighting Electronics Hans de Jong Prof. Luminaires Marc de Jong Cons. Luminaires Allard Bijlsma Automotive Lighting Dominiek Plancke Lumileds Mike Holt CMO/ Strategy

Functions Chief Financial Officer Stewart McCrone

Customer Segments

EY Geographies North America Zia Eftekhar

Chief Technology Officer

Chief Supply Officer

Latin America

Chief HR Officer

Chief Information Officer

China Lin Liangqi India Rajeev Chopra Mexico Sergio Villaln

Chief Design Officer Rogier van der Heide

General Legal Counsel Jaap van den Bergh

Japan

Special Lighting Appl. See appendix for country org charts

January 2011

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Philips Lighting Analysis

Appendix

January 2011

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Philips Lighting Analysis

Lighting Key Products

 LED city beautification

 Lighting Ballasts

 Consumer Luminaires

 Professional Luminaires

 Traditional Lightbulb

 Compact Fluorescent Light

 Automotive Lighting

 LED components

January 2011

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Philips Lighting Analysis

Lighting Portfolio View

Vision 2015 view Philips wants to be a global leader in health and well-being, becoming the preferred brand in the majority of our chosen markets. We believe Philips is uniquely positioned for growth through its ability to simply make a difference to peoples lives with meaningful, sustainable innovations. The Lighting market is set to grow, driven by LED. We will are ready to grow sales, expand margins, create value. Financial Targets Half of all Philips future growth will come from Lighting. Grow top-line sales, drive profitability to 12-14% reported EBITA

Vision 2015 Portfolio Strategy Lighting

Manage for Cash

Optimize Position
Automotive Conventional Lighting

Drive Growth
LED Lamps Professional Luminaires Consumer Luminaires

Invest for Long Term Growth

Smart Lighting Solutions Service Extensions

January 2011

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Philips Lighting Analysis

Lighting Market Shares

 Philips estimated the total lighting market to be 50-55 billion euro. The professional channel is the largest, and within the professional channel Home, Office and Outdoor are the most important for Philips.

January 2011

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Philips Lighting Analysis

Lighting Acquisitions
Lighting 2006 2007 2008 2009 2010 2011
Lumileds, US Lumileds Bodine, US Lighting Electronics TIR, Canada Solid State Lighting PLI, Belgium Consumer Luminaires LTI, US Special Lighting Color Kinetics, US Professional Luminaires Genlyte, US Professional Luminaires Ilti Luce, Italy Prof. Luminaires Selecon, New Zealand Prof. Luminaires Dynalite, Australia Lighting Electronics Teletrol, US Lighting Electronics Luceplan, Italy Consumer Luminaires Amplex, Denmark Lighting Electronics Burton, US Professional Luminaires Optimum Lighting, US Prof Luminaires

 Founded in 2005, Optimum Lighting manufactures a full range of lighting fixtures designed to meet the needs of the growing demand for energy-efficient products. The company excels in the rapid design, building and engineering of customized energy-efficient lighting solutions and the delivery of associated services for the professional market. Optimum Lighting is headquartered in North Carolina, USA, with approximately 70 employees. Financial details of the acquisition were not disclosed.

 After the large acquisition of Genlyte in 2008, Philips has done several bolt-on acquisitions in the area of luminaires and controls to acquire new technologies and new customers to develop new services.  Philips has acquired Burton Medical Products from the Norwegian industrial group Glamox. Burton is a healthcare lighting manufacturer engaged in the business of designing, manufacturing and distributing high quality exam, diagnostic and minor surgery lighting equipment. Since its inception in 1928, Burton has been known for superior quality, exceptional value, and long-lasting solutions to complex lighting issues facing physicians and healthcare professionals. Terms of the acquisition were not disLosed.  Philips has acquired the street lighting controls activities of Amplex, a Denmark-based provider of energy-efficient solutions. Amplex delivers lighting controls systems used to manage millions of streetlights on a daily basis across many different countries around the world. Amplexs lighting controls system is an automated management system that puts intelligent monitoring and control in every streetlight cabinet and ties them all together into a centralized streetlight management system. Upon Losing of this transaction during the third quarter of 2010, the acquired business will become part of the Lighting Electronics business within the Philips Lighting sector. Financial details of this agreement were not disLosed.  Philips has acquired Italy-based Luceplan, a leading consumer luminaires company in the lighting design segment in Europe. Luceplans luminaires portfolio includes table, suspension, wall and ceiling products for residential applications, which are also used in some professional applications. The company was founded in 1978 and is headquartered in Milan, Italy where it employs about 110 employees. Upon Losing of this transaction in the second quarter of 2010, which is subject to certain conditions, Luceplan will become part of the Consumer Luminaires business in the Philips Lighting sector. Financial details of the agreement were not disclosed.

January 2011

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Philips Lighting Analysis

Lighting Manufacturing Base


Philips has manufacturing facilities in some 25 countries worldwide, including: Belgium France Germany Netherlands Poland UK Brazil Colombia Mexico US China India Indonesia Malaysia Singapore South Korea Thailand Lesotho

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Philips Lighting Analysis

Country Overviews

January 2011

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Philips Lighting Analysis

Lighting Relations
US Mexico Mexico Zia Eftekhar Sergio Villaln Jorge Avila CEO Lighting CEO Lighting CEO Luminaires

January 2011

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Philips Lighting Analysis

Lighting North America

Philips Lighting in North America had revenues of 1,8 bln in 2009 (28% of total North American revenues). Sales in Lighting in North America are under pressure, especially since the construction and the automotive segments have been hit very hard during the recession. In nominal terms, revenues decreased 11%. Government stimulus is starting to have an impact from the third quarter of 2009 onwards, especially in the Energy efficient lighting projects. Especially the LED based lighting markets show strong growth. The US market for lighting (excluding LED lighting) is estimated to be between USD 4 and 5 billion. The market is divided between GE, Siemens and Philips, accounting for a total combined market share of over 75%. Growth is projected to be 2% anually and the market suffers from price pressure. The price pressure derives from the ongoing growing of imports from low wage countries (esp. Mexico) and because of the market power of the big retail chains (Walmart, Costco, etcetera). In the third quarter of 2009 Philips claimed to have a number one position in Lighting in 5 out of its 8 main market segments. Due to the market shifts, the demand for complete lighting solutions will become more important. Philips has done many acquisitions in North America in luminaires or lighting electronics to position itself better in lighting solutions. TIR, LTI, Color Kinetics, Genlyte, Teletrol, Burton With these acquisitions, Philips, solutions portfolio has grown significantly. In its future strategy, Philips intends to offer these solutions, supported by a relevant service offering. The services Philips aims for, are: Diagnosis services Implementation services Financial services

January 2011

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Philips Lighting Analysis

Lighting Latin America

 Lighting accounts for less than a quarter of total Philips Latin America Sales.  Philips is the market leader in the segments of automotive lighting, ballasts and lamps.  In Brazil, Philips has three Lighting manufacturing facilities; in Recife, Varginha and Sao Paolo/ Capuava, although Philips is in the process of closing the Capuava facility.

January 2011

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Philips Lighting Analysis

Lighting China
 Energy efficient lighting presents a tremendous opportunity for Philips. Lighting accounts for an estimated 12% of China's total electricity consumption. The Chinese Government has undertaken 10 major energy-saving programs during the 11th Five-year Program (20062010). Priority will be given to the use of energy-saving lights in public utilities, hotels, office buildings, shopping malls, stadiums as well as homes.  Philips has opened 80 Philips-branded lighting stores that uniquely address customer demand for energy-efficient, value-added lighting solutions for the home. The interior layout is based on rooms in the home rather than product categories. Philips also has 800 Home Lighting Centers within multi branded lighting shops, extending distribution even further. Both formats will be further rolled out in 2010.

January 2011

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Philips Lighting Analysis

Lighting India
 Philips managed single digit growth in 2009 with increased attention for consumer retail in the tier 2 and tier 3 cities. Philips estimates it has a 30% market share overall.  Philips India plans to increase the number of its exclusive touch points, a combination of shop-in-shops and light lounges, to 450 from the present 185 by the year-end 2010.  Philips is linking up with government departments to push LED bulb sales in the country. The company has launched new LED street lighting solutions that save power and require less maintenance. Some municipalities like New Delhi Municipal Corporation have already implemented these.  Philips is doubling compact fluorescent (CFL) manufacturing capacity at its Mohali plant in Punjab. During the course of this year, Philips India has already doubled the annual CFL capacity at the Mohali plant to 40 million units, and is all set to double it again over the next six to nine months.  In 2008, Philips established a global R&D center for lighting electronics in India. The facility which is situated in Noida will not only cater to the needs of the Indian market but also the Asia-Pacific, Europe and North America.

January 2011

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Philips Lighting Analysis

Lighting Japan
 Japan is a bit of a black hole for Philips Lighting. Domestic players are market leaders, with Philips not even in the top three.  In LED one of the global leaders is Nichia.

January 2011

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Philips Lighting Analysis

Lighting Mexico
 Philips has several lighting manufacturing facilities in Mexico, that mainly produce for the North American market. The facilities are mainly maquiladores and employ approximately 3,5 thousand people. 

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Philips Lighting Analysis

Philips Lighting Analysis

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January 2011

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Philips Lighting Analysis

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