financial model - ibm · financial model mark loughridge senior vice president and chief financial...

Financial Model

Mark Loughridge Senior Vice President and Chief Financial Officer,

Finance and Enterprise Transformation

© 2013 International Business Machines Corporation 2

11% CAGR

~$50B returned through share repurchase

Revenue Growth

~$2.80

2010 Operating EPS*

Revenue Mix

Enterprise Productivity

Margin Mix

Shares

2015 Operating EPS*

$11.67

At Least

$20

Operating Leverage

~$2.50

~$3.05

2015 Roadmap

Acquisitions

Enterprise Productivity yields margin

expansion

Shift to a higher value portfolio continues to

provide leverage

Shift to faster growing business mix provides ~1% revenue growth

Base revenue growth ~2%

excluding divestitures

~$20B of acquisition spend provides ~2%

revenue growth

Base Revenue Growth

* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense. Assumes current tax policy and Non-GAAP tax rate of 25%


2010 2012 2015

2015 Roadmap Progress

$11.67

$15.25

“At Least”

$20

2010-15 11% CAGR

Operating EPS*

Revenue Continued strong growth across key initiatives

– Growth Markets +10% CAGR

– Smarter Planet >25% CAGR

– Business Analytics +14% CAGR

– Cloud ~7x 2010 revenue

Strong acquisition performance

Operating Leverage

Margin expansion driven by continued business mix shift to higher value areas, Enterprise Productivity savings and operational improvements

Cash & Shareholder Return

Generated $35 billion in free cash flow and returned $34B to shareholders through gross share repurchase and dividends in 2011 and 2012

* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense

14% CAGR

2010 – 2012 Results


Business Analytics Growth Markets

Smarter Planet

Cloud

Contributes ~$7B of growth over Roadmap

Contributes ~$10B of growth over Roadmap

up from $6B previously

Contributes ~$7B of revenue, of which ~$3B is incremental growth

Approaches 30% of IBM’s geographic revenue by 2015

Revenue Growth ~$0.59

$11.67

Share Repurchase

$15.25 14% CAGR

’10-’12 Operating EPS

Growth Initiatives Roadmap Objectives

Operating Leverage

Growth Initiatives


~$17B ~$10B

~$3B ~$7B

2010* Revenue from Key Initiatives

2015 Revenue from Key Initiatives

Double-digit yr/yr growth

2010 ~$4B

~$3B

~$4B

~$0.4B

~$9B

Growth Initiatives contributed ~$9 billion of revenue growth

Incremental Cloud

Growth Markets

Smarter Planet

Business Analytics

2012

*Adjusted for scope added in 2012


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Growth Initiatives


2pts

2pts

1pts

BAO Smarter Planet Cloud High Value '10-'12 CGR

~20% 2012 GP%* ~60% ~50%

Includes: Labor-based Proc Svcs Legacy Advisory Svcs

Legacy App Svcs RSS

Industry Std Servers

* External Segment GP % modeled based on brand mix within each category at 2012 average margins by brand ** External segment revenue

Includes: GBS

Growth Markets GTS IGF

IP-based Proc Svcs Mainframe

Power PureSystems

Software Storage

Currently Under-performing

(excl. Growth Initiatives content)


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

~85% of total segment revenue in 2012

Growth Initiatives and high value offerings drove 4% growth at higher margins

2010 – 2012 Revenue Dynamics

4% CAGR

3% CAGR

2%** CAGR


2010 2011 2012 2013 2014 2015

Annual Operating EPS from Closed Acquisitions

Roadmap ~$0.90

~5% Pending Acquisitions

~95% Closed Acquisitions

Actual

Projected


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Closed acquisitions through 2012 position us on track to achieve the 2015 objectives

Acquisitions


~$1B

Operating view @ actual rates

Acquisitions closed 2010 - 2012


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Acquisitions closed since beginning of 2010 generated ~$1B of profit since inception

Acquisition Operating PTI

• 27 of the 33 acquisitions closed by the end of 2012 are exceeding their profit business cases

Scalable intellectual property

Key to solutions offerings

Drive synergies through global distribution

Acquisitions


57% 54%

71%75%

61% 63%59%

33%

50%

10%

21%

36%40%

29%

Likelihood of a deal achieving objectives

Attribute 1 Attribute 2 Attribute 3 Attribute 4 Attribute 5

Deals that don’t exhibit selected attribute Deals that exhibit selected attribute

Analytics around the correlation between key attributes and deal performance validate our acquisition strategy and improve our selection process

Attribute 18 Attribute 17

End-to-end themes that build on IBM strategic platforms – organic or acquired – and extend adjacently into new market opportunities. Examples:

• Smarter Commerce built on Websphere Commerce • Business Analytics built on Cognos acquisition • Enterprise Social built on Collaboration Solutions enhanced by Kenexa acquisition • Security built on Tivoli connected by Q1 Labs acquisition

Success Factors


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Acquisitions


Servers, Networking &

Storage Optimization

Cloud

Smarter Planet

Governance, Risk, Compliance &

Security

Complements Organic Assets

GTS Service Delivery

IBM Hardware Portfolio

GBS BAO Service Line

8 Analytics Solution Centers

Industry Solutions Frameworks

IBM Hardware Portfolio

GBS Offerings

Business Intelligence & Data Analytics

Spent $19B in R&D and ~$12B for 35 acquisitions closed / announced since beginning of 2010


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Acquisitions


Acquisitions have contributed significantly to IBM’s growth in key strategic areas

Big Data Mobile Social Business

Acquired

Organic IBM Connections

Help customers recruit,

on board, enable, train

and manage staff with an

integrated social platform

to create a smarter

workforce

IBM InfoSphere

Enable secure discovery

and exploration of data

across a broad range of

enterprise content and big

data to maximize return

on information

IBM Mobile Connect

Deliver application

development,

connectivity,

management & security

capabilities across many

device types


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Acquisitions


Manage Risk Enterprise Risk Management

and advisor to business units and senior management

Operational Efficiency Efficient service delivery through standardization, automation and

centralization

Business Insight Trusted Business Advisors

Tools Deployed Tools Deployed Tools Deployed

Country Financial Risk Scorecard

PRISM M&A risk management

Strategic planning optimization (SEE)

Critical Parts Management Tool

Employee expenses monitoring

Worldwide spending analytics

Workforce Analytics

Coverage Optimization

SO Cost and Risk Management

Labor claiming analytics

Business Intelligence Dashboards

Services Backlog Run Out and

Revenue Analytics

Business Partner Optimization and

Opportunity Growth

Transformation for Quota and

Opportunity Alignment

Implementation of Finance 2.0


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Deployment of Analytics


5,081

3,1743,032

2,7692,613

2,447

2,013

1,652 1,624

6,478

IBM Samsung Canon Sony Panasonic Microsoft Toshiba Hon Hai GE LG

Source: IFI CLAIMS Patent Services

20 Consecutive Years of Patent Leadership

Research & Development

~$35B

2015 Roadmap 2006 - 2010

$30B

2012 US Patents

We will continue to focus our investments on higher value businesses


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Investing for Growth


Revenue Growth @ CC

* Revenue mix percentages exclude PCD and Printers divestitures

Growth Markets % of IBM Geographic Revenue*

2011

16%

18%

21%

22%

24%

2006

2008

2010

11% 2000

30% Approaches

2015

2012

2%

-6%

1% 2%

-1%

10%

1%

11% 11%

7%

2008 2009 2010 2011 2012

Major Markets Growth Markets

+8 pts

+8 pts

+10 pts

+8 pts

IBM’s business mix continues to shift towards the Growth Markets

+10 pts


$11.67

Share Repurchase

$15.25 14% CAGR


Operating Leverage

Growth Markets


~$51B

~$47B

$1.9B

$0.5B $1.1B

$0.6B

2010 2012

Growth Markets delivered over 60% of IBM’s geographic gross profit growth between 2010 and 2012

* Sum of geographic gross profit not equal to IBM gross profit

Growth Markets

Major Markets

61% 39% Growth Markets

Major Markets

80% 20% Growth Markets

Major Markets

Geographic Gross Profit Bridge*

Gross profit from margin expansion

Gross profit from revenue growth


$11.67

Operating Leverage

~$1.49

Share Repurchase

$15.25 14% CAGR


Revenue Growth Mix

Gross Profit Growth Mix

Operating Leverage


Operating Pre-tax Income

Hardware/Financing Services Software

* Sum of operating segment pre-tax income not equal to IBM operating pre-tax income

** Stock-based compensation expense was not recorded at the segment level and excludes Enterprise Investments

2000**

Mix* Margin

35% @ 8%

38% @ 10% 27% @ 19%

2015 2006 2012

~10%

~40%

~50%

14% @ 15%

41% @ 16%

45% @ 38% Mix* Margin

Mix* Margin

Mix*

23% @ 12%

37% @ 10%

40% @ 28%

10%

22%

15%


$11.67

Operating Leverage

~$1.49

Share Repurchase

$15.25 14% CAGR


IBM expands margins in 2015 Roadmap by continuing to shift to higher value

Operating Leverage


Shared Services

End-to-End Process

Transformation

Integrated Operations

Cost & Expense Reduction

Revenue Productivity

Software

Services

Hardware / Financing

$8B $8B $8B

Enterprise Productivity Savings ($B)


$11.67

Operating Leverage

~$1.49

Share Repurchase

$15.25 14% CAGR


On track to achieve $8B of Enterprise Productivity

Operating Leverage


~40% flow to bottom-line

Ente

rpri

se

Pro

du

ctiv

ity

$8B

~60% reinvested for growth

Growth Investments

BAO Cloud Smarter Planet Growth

Markets

Acquisitions*

* Investment in acquisitions not already accounted for in the growth initiatives


$11.67

Operating Leverage

~$1.49

Share Repurchase

$15.25 14% CAGR


Enterprise Productivity is a critical source of investment funding

Operating Leverage


* Excluding GF Receivables

Primary Cash Uses $B

15.116.3

10.59.69.18.7

5.9

14.3

12.4

16.618.2

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$7$6

$8

$272011 - 2012

Gross Share Repurchase

Acquisitions

Capital

Dividends

Free Cash Flow* $B 2011 - 2015:

• Generate $90B - $100B of Free Cash Flow

• Return $70B to shareholders through gross share repurchases and dividends

• Spend $20B in acquisitions

• $30B - $40B of Financial Flexibility


$11.67

Operating Leverage ~$1.49

Share Repurchase

~$1.50

$15.25 14% CAGR


Strong Free Cash Flow supports investments and shareholder returns

Cash Generation and Usage


$11.67

Revenue Growth

Operating Leverage ~$2.50

~$3.05

Performance through ‘12: ~$0.59

~$1.49

~$1.50

~$2.80

Revenue Mix Enterprise Productivity

Margin Mix Shares Acquisitions Base Revenue Growth

2015 Operating EPS*

2010 Operating EPS*

14% CAGR $15.25

9.5%+ CAGR to go

“At Least” $20

~$50B returned through share repurchase

Enterprise Productivity yields margin

expansion

Shift to a higher value portfolio continues to

provide leverage

Shift to faster growing business mix provides ~1% revenue growth

Base revenue growth ~2%

excluding divestitures

~$20B of acquisition spend provides ~2%

revenue growth

2015 Roadmap



$15.25

Execution on business unit objectives

Flexibility in Enterprise Productivity savings

Cash generation and capital structure

IBM model supports the Roadmap base and provides opportunity for upside

2013 – 2015 Scenario


Revenue Growth 2015 Operating EPS*

2012 Operating EPS*

Shares Enterprise Productivity Margin Mix



2012 Operating EPS*

$15.25

Share Buyback

14% CAGR $15.25

~$1.35


Remaining $23B of gross share repurchase delivers ~$1.35 EPS





2012 Operating EPS*

$15.25

Share Buyback

Software Profit Growth

14% CAGR $15.25


Software profit at historical growth delivers ~$2.70 EPS

~$1.35

~$2.70





2012 Operating EPS*

$15.25

Enterprise Prod. yield

Share Buyback

14% CAGR $15.25

~$0.70

$20


Enterprise Productivity delivers ~$.70 EPS

~$1.35

~$2.70 Software

Profit Growth





2012 Operating EPS*

$15.25

Enterprise Prod. yield

Share Buyback

Capture additional growth opportunity from Software, Services & Hardware

14% CAGR $15.25

~$0.70

~$2.70

“At Least” $20


~$1.35

Software Profit Growth




'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13e '14e '15e

Hardware / Financing Services Software Sum of external segment pre-tax income not equal to IBM pre-tax income * Non-GAAP: Excludes Acquisition-related charges and non-operating retirement-related expense

Operating PTI / EPS * Segment Operating PTI$

2000 & 2001 segments not restated for stock based compensation

2015 Objectives

Operating EPS

2015 Roadmap

$3.32 $1.81

At Least $20

$15.25

At Least $16.70

Software contributes about half of our segment profit

Growth Initiatives deliver > $20B in revenue growth

Growth Markets approach 30% of IBM’s geographic revenue

Enterprise Productivity delivers $8B in gross savings

IBM returns $70B to shareholders over the Roadmap


These charts and the associated remarks and comments are integrally related, and they are intended to be presented and understood together.

In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplemental materials entitled “Non-GAAP Supplemental Materials” that are linked to the company’s investor relations web site at http://www.ibm.com/investor/events/investor0213.phtml. The Non-GAAP Supplemental Materials are also included as Attachment II to the company’s Forms 8-K dated January 22, 2013 and February 28, 2013.

financial model - ibm · financial model mark loughridge senior vice president and chief financial...

Documents