investor presentation second quarter 2007 -...
TRANSCRIPT
NCR Corporation
Investor PresentationSecond Quarter 2007
2
Note to InvestorsCertain non-GAAP financial information regarding
NCR’s operating results may be discussed during this presentation. Reconciliations of the differences between GAAP and non-GAAP measures are available on the Investor page of NCR’s website at www.ncr.com.
Remarks and responses associated with this presentation include forward-looking statements that are based on current expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to vary materially.
These risk factors are detailed from time to time in NCR’s SEC reports, including, but not limited to, Forms 10Q, 10K, 8K and the company’s annual report to shareholders.
3
23%
14%
28%
7%
3%
25%
Retail Store Automation(POS, self-checkout,
airport & hotel check-in)
Teradata Data Warehousing(includes hardware, software
and support services)
Financial Self Service(ATMs)
Payment and Imaging(check processing)
Systemedia(business consumables)
NCR’s Business Portfolio
2006 Revenue Mix
Customer Services(supports NCR andthird-party solutions)
$6.1B
4
Continued Operating Improvement
During the past few years, NCR has realigned/reduced its infrastructure cost, and positively changed its revenue mix towards higher margin products and services.
($ Millions)
5,000
5,500
6,000
6,500
1999
2000
2001
2002
2003
2004
2005
2006
0
100
200
300
400
500
600
1999
2000
2001
2002
2003
2004
2005
2006
RevenueNon-Pension
Operating Income*
*NPOI - Non-pension operating income (operating income before pension income/expense) Also excludes special items
5
Earnings Expansion
2002 2003 2004 2005 2006
$6.0 B $6.1 B
$618M
10%
$(136M)
$473M
8%
$2.13
$553M
9%
$(131M)
$410M
7%
$1.68
$5.6 B
$235M
4%
$(105M)
$130M
2%
$0.42
Revenue $5.6 B $5.9 B
NPOI1
% of revenue$136M
2%
$367M
6%
Pension Income/ (Expense)2
$74M $(135M)
Operating Income
% of revenue
$189M
3%
$232M
4%
EPS2 $0.68 $0.95
1Non-pension operating income is operating income before pension income/expense2Excludes special items, Non-GAAP results; see www.ncr.com for GAAP to Non-GAAP reconciliation
6
Strategic Separation
Global Leader in Enterprise Data Warehousing– #1 in Data Warehousing
– Gartner
The New NCRGlobal Leader in Self-Service– #1 in self-service ATMs
– Retail Banking Report (RBR)
– #1 in self-checkout– Venture Development Corp.
– #1 in self-service kiosks– Frost & Sullivan
7
Revenue
0
400
800
1,200
1,600
'99 '00 '01 '02 '03 '04 '05 '06 '07G*
Teradata Data WarehousingInvesting for Future Growth
• Leader in Enterprise Data Warehousing (EDW)
-Unique, specialized, market-leading technology & architecture
• Increasing demand for enterprise analytics
–more data, faster decisions
• Companies regularly upgrade–as they add data, users, and more complex queries
• Competition– IBM– Oracle
NPOI**
-200
-100
0
100
200
300
400
'99 '00 '01 '02 '03 '04 '05 '06 '07G*
*Guidance from 4/26/2007. 2007 Guidance assumes combined company for entire year. Does not include special charges or incremental costs relating to strategic separation.
**NPOI: Non-pension operating income (operating income before pension income/expense)
($M)
($M)
9%12%
16%
21%22%
22-23%
7-9% Growth
8
Proliferation of Fragmented Analytics –
Hundreds of Source Systems Thousands of Users/Depts.
Pricing
Engineering
Maintenance
Call Center
Sales
Accts. Payable
Accts. Receivable
Invoicing
Sales/Orders
Finance G/L
Customer Support
HR
Payroll
Purchasing
Order Fulfillment
Manufacturing
Inventory …
Marketing
Finance
Benefits
Risk Management
Forecasting
Data Marts
Redundant Data, Higher Costs, Poor Decisions
9
Leaders are Implementing an EDW –Lower Cost, Consistency of Data
Pricing
Hundreds of Source Systems Thousands of Users/Depts.
Engineering
Maintenance
Call Center
Sales
Accts. Payable
Accts. Receivable
Invoicing
Sales/Orders
Finance G/L
Customer Support
HR
Payroll
Purchasing
Order Fulfillment
Manufacturing
Inventory …
Marketing
Finance
Benefits
Risk Management
Forecasting
EnterpriseData
Warehouse(EDW)
10
Operational/ERP Applications...Order processing, Financials, Sales Force Automation...
Oracle/PeopleSoft/Retek, SAP, Siebel,
Transaction Systems Help Run the Business
Enterprise Analytic Systems Help Drive Business Decisions
Business Intelligence Tools & Applications...
Business Objects, Cognos, Hyperion, Fair Isaac, MicroStrategy, SAS, SPSS,
Unica, Teradata
Oracle, IBM, Microsoft...
Servers, Storage...Servers, Storage...
Accenture
BearingPoint
CapGemini
Cognizant
IBM
Systems Integrators...
Data Acquisition & Integration
Informatica, (IBM)Ascential, Trillium
Enterprise Application IntegrationTIBCO
Analytic Databases...
Enterprise Data
Warehouse
Teradata, IBM
Teradata
IBM
Technical Consulting...
Transaction & Special Purpose Databases...
Netezza, Data Allegro...
11
Enterprise Analytics Market($30B)
2006 Data Warehouse Infrastructure Market for the Global 3000 $18B
Three Ways to Grow1) Penetrate data warehouse
market and move customers to EDW Approach
2) Continually grow existing Teradata EDWs
3) Replace competitor EDWs
Significant Growth Opportunity in Data Warehouse Market
Transactional Systems
Data Integration Tools
Data Warehouse Infrastructure
Data Mining & BI Tools
Non EDW $14B
TeradataEDW$4B
Analytic Applications
Types of spend includes database, hardware, consulting and support services Source: IDC, Gartner, Teradata Analysis
23 1
12
Data Sophistication
Continuous update and time-sensitive queries
become important
OPERATIONALIZINGWHAT IS happening?
Event-based triggering takes hold
ACTIVATINGMAKE it happen!
Primarily batch andsome ad hoc reports
Increase in ad hoc analysis
ANALYZINGWHY
did it happen?
REPORTINGWHAT
happened?Analytical modeling
grows
PREDICTINGWHAT WILL
happen?
Batch
Ad Hoc
Analytics
Continuous Update/Short Queries
Event-Based Triggering
Data Warehouse Needs Will Evolve
• Query complexity grows• Workload mixture grows• Data volume grows• Schema complexity grows• Depth of history grows• Number of users grows • Expectations grow
Wo
rklo
ad
Co
mp
lexit
y
Single View of the Business – Better, Faster Decisions – Drive Business Growth
13
15-20%
Future Growth Opportunities
Retail Comm Fin Tvl/Trans Ins Manf
New CustomersInstalled Base
80-85%
Revenue Contribution• Installed base drives 80%+ of Teradata Revenues
• New customers typically increase the size and scope of their data warehouses over time… creating an annuity-like revenue stream
Targeted ProspectsExisting Customers
• Historical concentration in Retail and Telecommunications Industries, making progress in penetrating new industry verticals
Global 3000 Penetration
14
Self Service Solution
Bill PaymentHotel Check-
In / Out Food Order
Hardware
Application
Human Factors Engineering
Implementation Support
Industry Consultancy
Self Service Solution ComponentsSelf Service Solution Components
Retail Self Check-Out
Airport Ticketing/Travel
Increasing Use of Self-Service Technologies
ATMs
15
Financial Self Service (ATMs)Focus on Profitability
• Good market… with continued growth potential• Protect/improve profitability while capturing fair share of
market growth• Opportunity to improve maintenance services capture rate
Revenue opportunities• New solutions enabled through
technology leadership• Sales coverage expansion• Increase in R&D investment/efficiency• Manufacturing capacity alignment
Operating Income Improvement• Product cost reduction• Supply chain improvement• Infrastructure expense reduction
Competition• Diebold• Wincor/Nixdorf
*Guidance from 4/26/2007. 2007 Guidance assumes combined company for entire year. Does not include special charges or incremental costs relating to strategic separation
**Non-pension Operating Income - operating income before pension income/expense
1,0951,149
1,370 1,390 1,423
14%
12%11%
14%
16%15%
2002 2003 2004 2005 2006 2007G*
Revenue and NPOI** Margin
Shown in $M
3-4% Growth
16
ATM Revenue Demand Drivers
• Demand for Deposit Automation - Increasing Around the World– Automated deposit and processing of checks – US
• Check 21 should drive upgrades in the US in late 2007, continuing through 2009
– Automated deposit of cash – Europe leading upgrade cycle– Deposit/Recycling – especially evident in cash-based
countries in Europe & Asia
• Low Penetration in Emerging and Growth Markets Provides Growth Opportunity
USA W.Europe China India Russia
Population (in Ms) 298 464 1,314 1,095 143
ATMs/Million 1,353 707 73 19 195
17
Personas M Series:Delivering Unparalleled Flexibility
• Widest range of configurations: functionality and placements• Intelligent Deposit: Check, Cash and Recycling• Easy to upgrade...with deposit automation modules• User-centered design for maximum adoption• Expanded capacity, statement printer, passbook printer
RecycleCash In/Out
Cas
h R
ecyc
ler
CashDispense
Cas
h D
ispen
se
CashDeposit
Cas
h A
ccep
t
Cash Dispense,
Cash Accept
Cas
h A
ccep
t
Cas
h D
ispen
se
Cash Dispense,Recycle
Cash In/Out
Cas
h R
ecyc
ler
Cas
h D
ispen
se
Cash Dispense,Envelope Deposit
Enve
lope
Cas
h D
ispen
se
Dual Capacity
Cash Dispense
Cas
h D
ispen
se
Cas
h D
ispen
se
Cash Dispense,
Cash Accept, Check Accept
Cas
h A
ccep
t
Cas
h D
ispen
se
Traditional Deposit Automation Recycling
18
714
797
864 853 871
4%3%
0%
-8%
4%5%
2002 2003 2004 2005 2006 2007G*
Retail Store AutomationEmerging Self-Service Growth Opportunity
• Market Leader– Unmatched industry knowledge– Broadest solution portfolio – Complete product refresh
• Growth opportunity in “self-service” technology as it becomes widely accepted by consumers
• Portfolio of industry-testedretail solutions
– Flexible point-of-sale (POS) terminals
– Industry-leading self-service solutions, such as self-checkout, self-ticketing, and kiosks
– Global leader in bi-optic scanners
• Competition– POS: IBM, Wincor, Fujitsu – Self-Checkout: IBM, Fujitsu– Scanners: PSC
Revenues and NPOI** Margin
Shown in $M
4-5% Growth
*Guidance from 4/26/2007. 2007 Guidance assumes combined company for entire year. Does not include special charges or incremental costs relating to strategic separation
**Non-pension Operating Income - operating income before pension income/expense
19
Store of the Future
Checkout
Customer Services
Rece
ivin
g
Back Office
Core Merchandise
Food Service
Fitting Rooms
Banking
Garden Center
Loyalty
Self Checkout
Special Services
SmartShelves
Financial Services/ATM
Back OfficeSystems
Supply ChainSystems
Front OfficeSystems
Supply Chain
Corporate HQ
Store Support
Data Warehouse
Price Optimization
RFID Receiving
RFID Portal
Self-Service technology provides strategic solutionsSelf-Service technology provides strategic solutions
Product Locator & Extension Kiosks
Food Order Express
Travel Services
Pharmacy & Physician
Pharmacy & HealthCare
20
Customer ServicesPrevious Strategy
Inconsistentservice quality and profitability levels
Diffusedservice strategy
that added cost tothe infrastructure
eBusinessSupport
Bloated infrastructure withincompatible systems
and duplication of effort
3rd Party
Products
NCR Logo’dProducts
Now, focusing on maintenance of NCR productsNow, focusing on maintenance of NCR products
21
# OF CALL CENTERS
2001 75
2006 12
FIELD ORGANIZATIONSTRUCTURE
Common organization model implemented in 4 Regions & 17 Areas
Operational Excellence: CS DeliveryAreas of Progress
SERVICE DELIVERY
2006 $107 4.0 85.2%
2001 $151 3.2 84.0%
CallsPer CE
SLAResolution
Cost PerHour
LOGISTICS
*FX Neutral
2006 $350M $180M 76.5%
PartsPurchases
Parts FillRate
LogisticsCosts
2001 $409M $202M 77.0%
NUMBER OF SERVICE EMPLOYEES
2001 - 2006
17% Reduction
GLOBAL SYSTEM CONSISTENCY
20012005
583
113
DispatchSystems
CustomerBilling
Systems
GLOBAL SYSTEM CONSISTENCY
20012006
583
113
582
112
DispatchSystems
CustomerBilling
Systems
Time to deploy from 1 Year to 3-4 Days
22
NCR’s Focus Going Forward
Reduce Reduce Cost of Goods SoldCost of Goods Sold
Reduce Infrastructure / Reduce Infrastructure / BackBack--office Costsoffice Costs
Pension ReductionPension Reduction
Severance Reduction
Revenue Growth in Revenue Growth in Key SolutionsKey Solutions
EPS Expansion&
Free Cash Flow Generation
Invest in Invest in Sales/R&DSales/R&D
Improve Customer Services Profitability
23
Continued Cost Reduction
$350M of
G&A reduction
Phase IPhase I2003 2003 -- 20062006
Reduce COGSReduce COGS
Lower Pension ExpLower Pension Exp
Invest for future Invest for future growthgrowth
Supply chain, Customer Services costs
BU Operations
Internal IT costsERP, legacy applications, telecommunications costs
Cost Areas
Real Estate Excess capacity, reduced square footage/employee
Finance & Admin
Human Resources
Outsourced orders, AR, AP to Accenture & added ERP
Staffing, recruiting, align benefits to benchmarks
Actions
COGS ReductionCOGS Reduction
Manufacturing CostsManufacturing Costs
Supply ChainSupply Chain
Process ImprovementsProcess Improvements(e.g. Order(e.g. Order--toto--Cash)Cash)
Phase IIPhase II
24
Revenue Growth - with healthier mix
2003 2004 2005 2006 2007G
Teradata Data Warehousing (1)% 12% 9% 6% 7-9%
Financial Self Service 5% 19% 1% 2% 3-4%
Retail Store Automation 12% 8% (1)% 2% 4-5%
Customer Services 0% (3)% (5)% (1)% 2-3%
Total NCR Revenue 0% 7% 1% 2% 3-4%
25
Operating Margins – Driving Beyond 10%(Excluding the Impact of Pension Expense/Income)
2003 2004 2005 2006 2007G*
Teradata Data Warehousing 12% 16% 21% 22% 22-23%
Financial Self Service 14% 16% 15% 12% ≈ 14%
Retail Store Automation 0% 3% 4% 4% ≈ 5%
Customer Services (2)% (3)% 3% 5% ≈ 6%
Total NCR (w/o options expense) 4% 6% 9%
Total NCR (w/ options expense)
10%
* Does not reflect incremental one-time and recurring costs associated with the strategic separation of Teradata from NCR
26
GAAP $0.30 $1.51 $2.80 $2.09 Non-GAAP $0.40 $0.95 $1.68 $2.13 $2.50-$2.60
1 Non-GAAP results; see NCR.com for GAAP to non-GAAP reconciliation2 2007 EPS Guidance from 4/26/2007. 2007 Guidance assumes combined company for the entire year. Does not include special charges related to strategic separation or manufacturing realignment
EPS excluding one-time items
Continued EPS Expansion
2003 2004 2005 2006 2007G2
$0.40
$0.95
$1.68
1$2.50 – $2.60
$2.13
27
Cash Flow Generation
212
147
165133
482
347
514
345
425
270
367
182212
2003 2004 2005 2006 2007G*
Operating Cash Flow Capital Expenditures Free Cash Flow
Shown in $ Millions
≈
*2007 FCF does not include cash used for strategic separation or manufacturing realignment
28
Enhance Revenue
ReduceCosts
Operating Margins
Revenue
Costs
Drivers of NCR’s Earnings Expansion
• Operational initiatives– COGS reductions– Invest for growth in demand creation and R&D– Build a growth / customer-oriented culture
– Continued re-alignment of Customer Services business– Continued G&A reductions
• Built-in earnings momentum as pension expense declines in the future– Future pension expense should be lower due to freezing of
the U.S. pension plan
• Revenue growth leverages the model– Positive revenue mix shift - increasing Teradata Data
Warehousing and Self Service, while Customer Services declines as low/no margin business de-emphasized
– Attractive contribution margin on incremental Data Warehousing and Self Service revenues
Drivingthe Profit
Wedge