Financial Model. Mark Loughridge Senior Vice President and Chief Financial Officer, Finance and Enterprise Transformation

Transcription

1 Financial Model Mark Loughridge Senior Vice President and Chief Financial Officer, Finance and Enterprise Transformation

2 2015 Roadmap Base revenue growth ~2% excluding divestitures Shift to faster growing business mix provides ~1% revenue growth ~$20B of acquisition spend provides ~2% revenue growth Enterprise Productivity yields margin expansion Shift to a higher value portfolio continues to provide leverage ~$50B returned through share repurchase s 11% CAGR Base Revenue Growth Revenue Mix Acquisitions Enterprise Productivity Margin Mix ~$2.80 At Least $20 ~$2.50 ~$ Operating EPS* * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Assumes current tax policy and Non-GAAP tax rate of 25% 2015 Operating EPS*

3 2015 Roadmap Progress Operating EPS* Revenue 2011 Results Double-digit performance across growth initiatives Growth Markets +11% Smarter Planet nearly 50% Yr/Yr At Least $ % CAGR 15% Yr/Yr Business Analytics +16% Yr/Yr Cloud 2.8x growth in 2011 Strong performance of 22 acquisitions closed through 2011 Operating Leverage Margin performance in line with model Delivered $1.9 billion of Enterprise Productivity savings Cash & holder Return Generated $16.6 billion in free cash flow Returned over 100% to shareholders through share repurchase and dividends * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense

4 Growth Initiatives Growth Initiatives Roadmap Objectives Smarter Planet Contributes ~$7B of growth over Roadmap Growth Markets Approaches 30% of IBM s geographic revenue by 2015 Business Analytics Contributes ~$6B of growth over Roadmap Cloud Contributes ~$7B of revenue, of which ~$3B is incremental growth

5 Growth Initiatives 2011 Growth Markets 16% Growth Initiatives Performance Nearly 40 growth market countries grew double digits at constant currency in 2011 Smarter Planet ~50% 2,400 Smarter Cities engagements Business Analytics 16% Nearly 9,000 analytics consultants and 33 closed/announced acquisitions now make up IBM s Analytics business Cloud 2.8x 4.5 million daily client transactions through IBM Public Cloud

6 Growth Initiatives Growth Markets Growth Initiatives 16% 2011 Revenue Results Growth Markets 2011 Brand Mix Hardware/ Financing 29% Growth markets mixed to high value-add hardware content Smarter Planet Business Analytics 16% ~50% Services 51% Software 20% Hardware driven by new customer content Plant the Flag Over 1,200 new Power clients in 2011 Cloud 2.8x

7 Growth Initiatives Growth Initiatives 2011 Revenue Results Smarter Planet Business Analytics Cloud Smarter Planet Business Analytics 2011 Brand Mix Yr/Yr at actual rates Cloud Growth Markets 16% Smarter Planet Business Analytics Cloud 16% ~50% 2.8x Services ~40% Hardware ~5% Software ~55% Major Markets Growth Markets ~25% ~35%

8 Growth Initiatives Growth Initiatives contributed ~$6 billion of growth in 2011 ~$17B ~$7B ~$2B ~$6B ~$2B ~$3B ~$0.2B ~$50B ~$30B ~$3B i Double-digit yr/yr growth +$6B Revenue from Key Initiatives Growth Markets Smarter Planet Business Analytics Incremental Cloud 2015 Revenue from Key Initiatives

9 Servers, Networking & Storage Optimization Acquisitions Spent $14B in R&D and closed/announced ~$11B for 30 acquisitions since 2010 Complements Organic Assets IBM Hardware Portfolio Cloud IBM Hardware Portfolio GTS Service Delivery Smarter Planet Smarter Commerce Smarter Cities Industry Solutions Frameworks GBS Offerings Business Intelligence & Data Analytics Governance, Risk, Compliance & Security GBS BAO Service Line 8 Analytics Solution Centers

10 Acquisitions Acquisitions have contributed significantly to IBM s growth in key strategic areas Smarter Commerce Security Expert Integrated Acquired Organic GBS Offerings GTS & GBS Services Leadership in B2B integration, Integration across a complete Integrates and tunes hardware Commerce solutions, and solutions framework and software in ready-to-go Enterprise Marketing Mgmt Capabilities to secure people, data, workload optimized systems Comprehensive portfolio across applications and IT infrastructure Captures and automates from Buy, Market, Sell, and Service Real-time analytics provide visibility into security threats infrastructure to the application Deploys and runs for rapid time-to-value

11 PTI Margin Revenue Yr/Yr% Acquisitions Focus acquisition investments of ~$20B on key growth areas that leverage IBM s global reach and scale 45% 30% 15% 20% Forward Looking Estimates 30% 10% 10% 10% Scalable intellectual property 0% Yr1 Yr2 Yr3 Yr4 Yr5 Key to solutions offerings Forward Looking PTI Margin Estimates 30% 20% 10% 0% 2% 11% 2% 18% 10% 23% 15% 27% 20% Drive synergies through global distribution -10% -20% -20% PTI Margin Margin excl. amortization of intangibles and acquisition-related charges Yr1 Yr2 Yr3 Yr4 Yr5

12 Acquisitions Closed acquisitions through 2011 position us on pace against the 2015 Roadmap objectives Annual Revenue from Closed Acquisitions Actual Projected Roadmap Model ~$11B ~55% Future Acquisitions ~45% Closed Acquisitions Annual Operating EPS from Closed Acquisitions Actual Projected Roadmap Model ~$0.90 ~25% Future Acquisitions ~75% Closed Acquisitions

13 Growth Markets IBM s business mix continues to shift towards the Growth Markets CC 11% 11% Growth Markets % of IBM Geographic Revenue* 2015 Approaches 30% +8 pts 1% +10 pts +10 pts % 2% +8 pts 1% 2% % -6% % % Major Markets Growth Markets * Revenue mix percentages exclude PCD and Printers divestitures % 16% 11%

14 Growth Markets We have accelerated investment in Growth Markets expansion 2011 Branch Office Growth 2015 Roadmap Yr/Yr at constant currency 11% ~2X Overall Growth Markets Branch Office Acceleration Branch Office Plan ~$17B from Growth Markets Market Expansion ~40% 2% Major Markets Growth Markets Market Expansion Branch offices grew about twice the growth rate of the overall Growth Markets in 2011 Market expansion enabled by globally integrated enterprise Investment focused on client-facing resources Back office delivered through global shared services model Market expansion enables ~40% of Roadmap for Growth Markets

15 $0.18 Growth Markets delivered over 45% of IBM s Geographic Gross Profit growth in 2011 Geographic Gross Profit Bridge* $2.2B ~$51B $1.9B Major Growth Markets Markets ~$47B Growth Markets 45% 55% Major Markets Gross Profit Growth Growth Markets 47% 53% Major Markets 2010 Geographic Gross Profit 2011 * Sum of geographic gross profit not equal to IBM gross profit

16 Investing for Growth We will continue to focus our investments on higher value businesses $0.18 6,180 4, US Patents Research & Development Roadmap $30B ~$35B 2,821 2,559 2,483 2,311 2,286 1,533 1,514 1,465 1,308 1, IBM Samsung Canon PanasonicToshibaM icrosoft Sony Seiko Epson Ho n Hai Hitachi HP Intel Cisco Oracle A pple EM C A ccenture Top 10 Other IT Companies Source: IFI CLAIMS Patent Services

17 $0.18 IBM expands margins in 2015 Roadmap through a continuation of our shift to higher value % of Operating Segments Profit* ~50% 44% = $10B 27% = $2.6B 38% 35% 40% 37% 23% 41% 16% ~36% ~13% 2000** e 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

18 $0.18 In 2011 IBM delivered first installment against $8B 2015 objective Enterprise Productivity Savings ($B) Continuous improvement leveraging analytics Locate work to where it best can be performed 0.5 Focus integrated operations on high value advisory activities d Services End-to-End Process Transformation Integrated Operations Balance savings between reinvesting and driving margin performance

19 Enterprise Productivity provides flexibility and leverage across the business model Enterprise Productivity Savings ($B) $0.18 $8B $8B $8B Integrated Operations Software Revenue Productivity End-to-End Process Transformation Services Cost & Expense Reduction d Services Hardware / Financing

20 PTI Margin Revenue and Segment Revenue and Operating Pre-Tax Income 50% IGF $2B $ % 30% Software $10B 20% 2011 IBM Operating PTI % 2011 EPS 10% STG $2B GBS $3B GTS $6B 0% $0B $25B $50B $75B $100B $125B Sum of Segment Revenue 2015 Operating EPS

21 PTI Margin Revenue and Segment Revenue and Operating Pre-Tax Income 50% Remaining $35B of share repurchase delivers ~$2.05 EPS IGF $ % Software 30% ~$ % 2011 IBM Operating PTI % 2011 EPS GBS GTS 10% STG 0% $0B $25B $50B $75B $100B $125B Sum of Segment Revenue 2015 Operating EPS

22 PTI Margin Revenue and $ % 40% 30% 20% Segment Revenue and Operating Pre-Tax Income 2015 IBM Operating PTI % 2011 IBM Operating PTI % Software profit at historical growth delivers ~$3.30 EPS +3pts Software IGF Software Growth ~$3.30 ~$ EPS GBS GTS 10% STG 0% $0B $25B $50B $75B $100B $125B Sum of Segment Revenue 2015 Operating EPS

23 PTI Margin Revenue and Segment Revenue and Operating Pre-Tax Income $ % 40% ~40% yield on Enterprise Productivity spending reduction delivers ~$1.20 EPS IGF Enterprise Prod ~$1.20 Software Growth ~$3.30 Software 30% 2015 IBM Operating PTI % ~$ % 2011 IBM Operating PTI % +4pts 2011 EPS GBS GTS 10% STG 0% $0B $25B $50B $75B $100B $125B Sum of Segment Revenue 2015 Operating EPS

24 PTI Margin Revenue and $ % 40% 30% Segment Revenue and Operating Pre-Tax Income Software delivers profit growth from new markets Services captures growth from key market transitions STG / IGF capitalize on technology leadership Software 2015 IBM Operating PTI % IGF At Least $20 Enterprise Prod ~$1.20 Software Growth ~$3.30 ~$ % 2011 IBM Operating PTI % 2011 EPS GBS GTS 10% STG 0% $0B $15B $30B $45B $60B $75B $90B $105B $120B $135B Sum of Segment Revenue 2015 Operating EPS

25 Cash Generation and Usage Free Cash Flow* $B $0.77 $0.18 About $150 billion of free cash flow generated over past fifteen years Fueled organic and acquisition investments Returned over 100% to shareholders +$3.7B +$740M/Yr +$6.1B +$1.2B/Yr ~$10B +$0.5B +$100M/Yr * Excluding GF Receivables

26 $0.77 $0.18 Free Cash Flow* $B $B $25 $20 $15 $10 $5 $0 Cash Generation and Usage Approaches $100B $69B e 2013e 2014e 2015e Primary Uses of Cash $B $60 Capital Dividends $22 $12 Acquisitions $18 $B * Excluding GF Receivables ~$50 Capital Dividends ~$25 ~$20 Acquisitions ~$20 ~$40B Cash & Balance Sheet Flexibility in 2015

27 2015 Roadmap Base revenue growth ~2% excluding divestitures Shift to faster growing business mix provides ~1% revenue growth ~$20B of acquisition spend provides ~2% revenue growth Enterprise Productivity yields margin expansion Shift to a higher value portfolio continues to provide leverage ~$50B returned through share repurchase Base Revenue Growth Revenue Mix Acquisitions Enterprise Productivity $0.18 Margin Mix s $0.77 ~$2.80 At Least $20 +10% CAGR to go 2011 Performance: ~$3.05 ~$ Operating EPS* * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Assumes current tax policy and Non-GAAP tax rate of 25% 2015 Operating EPS*

28 Operating PTI / EPS * Segment Operating PTI$ Operating EPS 2015 Roadmap At Least $15 At Least $ Objectives Software contributes about half of our segment profit Growth initiatives deliver $20B in revenue growth Growth markets revenue approaches 30% of IBM s total $3.32 $1.81 Enterprise productivity delivers $8B in gross savings IBM returns $70B to shareholders over the roadmap '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12e '13e '14e '15e Hardware / Financing Services Software * Non-GAAP: Excludes Acquisition-related charges and non-operating retirement-related expense Sum of external segment pre-tax income not equal to IBM pre-tax income 2000 & 2001 segments not restated for stock based compensation

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31 Certain comments made in the presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. 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 posted on the Company s investor relations web site at The Non- GAAP Supplemental Materials are also included as Attachment II to the Company s Form 8-K dated May 9, 2012.

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