Q3 2019 results

October 25, 2019

Important information
Forward-Looking Statements and Risks & Uncertainties
This document and the related oral presentation contain, and responses to questions following the presentation may contain, forward-looking statements that reflect the intentions, beliefs or current expectations and projections ofSignify N.V. (the “Company”, and together with its subsidiaries, the “Group”), including statements regarding strategy, estimates of sales growth and future operational results.
By their nature, these statements involve risks and uncertainties facing the Company and its Group Companies and a number of important factors could cause actual results or outcomes to differ materially from those expressed inany forward-looking statement as a result of risks and uncertainties. Such risks, uncertainties and other important factors include but are not limited to: adverse economic and political developments, the impacts of rapid
technological change, competition in the general lighting market, development of lighting systems and services, successful implementation of business transformation programs, impact of acquisitions and other transactions, impactof the Group’s operation as a separate publicly listed company, pension liabilities and costs, establishment of corporate and brand identity, adverse tax consequences from the separation from Royal Philips and exposure tointernational tax laws. Please see “Risk Factors and Risk Management” in Chapter 12 of the Annual Report 2018 for discussion of material risks, uncertainties and other important factors which may have a material adverse effect on
the business, results of operations, financial condition and prospects of the Group. Such risks, uncertainties and other important factors should be read in conjunction with the information included in the Company’s Annual Report2018 and the semi-annual report 2019. Additional risks currently not known to the Group or that the Group has not considered material as of the date of this document could also prove to be important and may have a material
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Non-IFRS Financial Statements
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which are not recognized measures of financial performance or liquidity under IFRS. The non-IFRS financial measures presented are measures used by management to monitor the underlying performance of the Group’s businessand operations and, accordingly, they have not been audited or reviewed. Not all companies calculate non-IFRS financial measures in the same manner or on a consistent basis and these measures and ratios may not be comparable
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2Content
Business and operational performance by Eric Rondolat
Financial performance by Stéphane Rougeot

Outlook and conclusion by Eric Rondolat
Q&A

3

Third quarter sales of EUR 1.5bn and operational profitability of 11.0%
Sales (in EURm) & comparable sales growth (in %)

-3.2%

-3.3%
-7.3%

-6.1%

-5.0%

•CSG decreased by 5.0% due to:• Challenging macro environment with lower market activity
in Europe, US, Greater China, as well as a major impact oftightening liquidity in India• Very high comparison base in Lamps

1.594

1.726

1.478

1.477

1.542

•

LED-based sales grew by 2.6%, accounting for 78% of sales

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

•

Installed base of connected light points increased from 50m
in Q2 19 to 53m in Q3 19•

Currency comparable adjusted indirect costs down EUR 22m,a reduction of 4.7%

•Adj EBITA margin Signify down 100 bps due to Lamps and FXof -30 bps•

Net income of EUR 74m•

Free cash flow of EUR 45m, reflecting phasing of payables andreceivables as previously indicated at the end of Q2•

Successfully closed the acquisition of Klite on October 1, 2019

•Ranked Industry Leader in the Dow Jones Sustainability Index

Adjusted EBITA (in EURm & as % of sales)
12.0%

12.4%
11.0%
7.8%

4Key observations for Q3 19

9.0%

191

214115

133

169

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Growing profit engines: CSG of 1.0% and Adjusted EBITA margin
improvement of 80 bps

5vs LY (EURm)

Adjusted
EBITA %vs LY (bps)56+312.3%+30

1.7%

86+712.3%+60

Home-3.1%-3+5-2.6%

+430

Total

1.0%

139+1411.0%

+80

Q3 19

CSG %

Adjusted EBITA

LED0.9%Professional(EURm)

LED Adjusted EBITA margin improved by 30 bps, driven by ongoingprocurement savings
Sales (in EURm) & comparable sales growth (in %)
-0.2%

-1.8%

444481

449

445

457

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Adjusted EBITA (in EURm & as % of sales)
14.4%
12.0%

6•

Comparable sales increased by 0.9%
• LED lamps delivered a solid performance• LED electronics continued to be impacted by lower
customer demand in most regions•

Adjusted EBITA margin improved by 30 bps, mainly as aresult of ongoing procurement savings

0.9%

0.2%

-1.9%

Key observations for Q3 19

11.9%

12.0%

12.3%

53

69545356

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

LED business highlights
Introduced Wi-Fi based
smart lighting in the USand India

Introduced easy-toinstall T Beamer LED
batten in India

Launched CertaDrive,
first round-shapedimmable point driver

Launched a new familyof RDL plug and playconstant voltage drivers•

•

•

••

•

7

Offers easy-to-install
smart lighting via Wi-Fi
Retrofit light bulb fits
any table lamp,
luminaire or downlight
Operates with WiZ
Connected ecosystemthrough WiZ app••

Simplifies installation as
LED batten fits existingsockets, which prevents
damage to walls
Offers wide light spread
Enables better focusedlight due to uniqueswivel function, socustomers can move LED
70 degrees up and down••

Services high volume
downlight applications
Works with 20+ different
brands of most common
wall dimmers
Low wattage driverfamily covers Chinese
OEM export and US
domestic market•Provides quick and easy
installation, allowing
installation by nonelectricians
Enables full offer for
shelf and cove lightingwith the alreadylaunched Fortimo
LEDFlex and RDL
modulesProfessional Adjusted EBITA margin improved by 60 bps, mainly driven by
procurement and indirect cost savings
Sales (in EURm) & comparable sales growth (in %)
0.4%

-1.5%
-6.9%

Key observations for Q3 19•

CSG of 1.7%, mainly driven by• Solid performance in China and the Middle East• Partly offset by a low level of market activity inEurope, most notably in Germany, and in India•

Adjusted EBITA margin increased by 60 bps to 12.3%, asprocurement and indirect cost savings more than offset
the negative impact of price and mix

1.7%
-5.6%

675

715

599

632

698

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Adjusted EBITA (in EURm & as % of sales)
11.7%

12.3%

12.0%
8.8%
5.3%

87985

3255

86

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Professional business highlights
Made Norwegian ITsystems integrator
Atea’s office smartInstalled Trulifi at press
center of German
football club HSV

Helping AppHarvest toincrease efficiency andboost yields

Installed Interact Sports
at the Orange
Velodrome in Marseille••••

Combines Cisco’s
network technology withconnected sensors andluminaires from Signify
and its Interact Office
softwareProvides personalization,productive and bioadaptive lighting
Keeps employees excitedand engaged••9•

Newly installed Philips
PowerBalance gen2 LEDs
provide Internet
connection through theroom’s ceiling lights
Allows journalists andphotographers at HSV’s
home matches to filestories and pictures inhighly reliable, secureand fast way•••Combines LED with highpressure sodium lighting
Philips GreenPower LEDs
help to grow moreproduce with 40% lessenergy use
Agrolux HPS lighting
provides crops with heatin colder months
Boosts tomato andcucumber yields••

Integrates pitch andterrace lighting withsound and animations,creating immersive fanexperience
Unlocks different scene
management via
centrally controlled
dashboard
Meets latest
broadcasting standards

Home – strict application of our commercial policies and investments madeto prepare the launch of innovative offerings in Q4Sales (in EURm) & comparable sales growth (in %)
24.4%
19.0%

Key observations for Q3 19•

CSG of -3.1%, due to• Lower performance in the US driven by a strict
application of our commercial policies• Partly offset by good momentum in Europe•

Investments were made to prepare the launch ofinnovative offerings in Q4
Adj. EBITA margin improved by 430 bps to -2.6%

176
115

110

-1.4%

-2.6%

Q3 18

Q4 18

107

108
-3.1%

Q1 19

Q2 19

Q3 19

Adjusted EBITA (in EURm & as % of sales)
8.9%

-6.9%

-2.6%

-6.1%

-7.8%

-7-8

Q1 19

Q2 19

16-810

Q3 18

Q4 18-3Q3 19•

Home business highlights
Introduced the Philips
Hue Play HDMI Sync box

Provided consumers
with new smart
accessories

Launched new range ofPhilips Hue Filament
bulbs

Extended existing rangeof smart home lighting
products

••

•

•

•
•

•
11Provides easy way tosynchronize all digitalcontent with up to 10
Philips Hue lights
Compatible with movies,
TV shows and games
Offers surround lighting
to create immersive
experience
Complements screen
action in living room•Smart button: Allows
consumers to control
their Hue lights with asingle press, or press andhold to brighten and dim
Smart plug: Turns any
light point with powerplug into a Hue smartlight•

Offers consumers
convenience of smart
lighting and beauty of
popular filament bulbs
Provides same control,
functionality andambiance of Philips Hue
ecosystem but withmore stylish design••

Philips Hue Go: gives
users broader control
thanks to additional
Bluetooth capability andextended battery life
Fugato and Argenta:
adds a modern touch toany room
GU10 and E14: now alsoequipped with BluetoothCash engine – Lamps Adjusted EBITA margin remained solid at 19.4%
Sales (in EURm) & comparable sales growth (in %)-11.1%-19.3%Key observations for Q3 19•

Comparable sales decreased by 25.5% due to a very highcomparison base related to the halogen bulb ban inEurope in Q3 18•

Continued market share gains•

Adjusted EBITA margin remained solid at 19.4%-17.9%-20.3%-25.5%

361

345

309

286

274

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Adjusted EBITA (in EURm & as % of sales)
24.6%
20.5%

19.5%

19.4%

17.5%

128960

6356

53

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Agreement to acquire Cooper Lighting Solutions to strengthen our position inthe attractive North American lighting market
Signify to acquire Cooper Lighting Solutions for USD 1.4bn in cash
• Expanding our position in the attractive North American lighting market• Increasing innovation power and more competitive offerings• Improving the business mix with Professional revenues increasing from 42% to 53% of totalsales
Substantial value creation opportunity• Cost synergy potential with savings of more than USD 60m per year, to be largely achieved in
the first 3 years• Mid-teens EPS accretion in year 1• Transaction ROIC to exceed WACC after year 113

ContentBusiness and operational performance by Eric Rondolat
Financial performance by Stéphane Rougeot

H1 19 highlights and 2019 outlook by Eric Rondolat
Q&A14

Signify Adj. EBITA margin reduction, mainly due to lower sales volumes inLamps
Adjusted EBITA (in EURm)
as %of sales

12.0%

191

11.0%-100 bps-24-6922-20169

Indirect Costs

Currency

OtherQ3 1950Q3 18

15

Volume / Mix

PriceCoGSAdjusted currency comparable indirect costs decreased by 5%
as % of sales
In EURm

28.7%

28.7%

• Indirect cost reduction of EUR 22m458-22

Adj. R&D

Adj. SG&A442• Negative currency impact of EUR 6m

65• Continue to execute initiatives to further

670388377

Adjusted indirect
costs Q3 18

16

Key observations

Indirectcost savings

Currency impact Adjusted indirect
costs Q3 19

reduce the indirect cost base

WoCa decreased by 70bps as % of sales, reflecting continued focus on
improving WoCa, with lower receivables and higher payables
Working capital1 (in EURm & as % of sales)

8.4%

17Inventories (in EURm & as % of sales)
9.4%

9.3%

13.8%

8.0%

14.9%

15.9%

16.5%

878

943

999

1.030

Q3 19

Q4 18

Q1 19

Q2 19

Q3 19

10.5%

10.1%

14.1%

15.3%

15.2%

13.3%

536

587

503

588

Q4 18

Q1 19

Q2 19

-70 bps

8.6%

9.0%

597

612

694

659

924

957

1.009

994

Q4 17

Q1 18

Q2 18

Q3 18

Q4 17

Q1 18

Q2 18

Q3 18

1 Working capital includes inventories, receivables, accounts and notes payable, other current assets & liabilities,

derivative financial assets & liabilities, and accrued liabilities+ 130 bps

Net debt decreased by EUR 8m
In EURm865857-188
6923828

1438

FCF: EUR +45m

Net debt
end of Q2 19
18

EBITDA

Change inworking capital

Net capex

Change inprovisions

Interest & Tax Other FCF items*Other includes finance lease new borrowing (EUR 21m) and FX effect on cash, cash equivalents and debt

Other*Net debt
end of Q3 19Content
Business and operational performance by Eric Rondolat
Financial performance by Stéphane Rougeot

Outlook and conclusion by Eric Rondolat
Q&A19

Revised 2019 outlook%• Continuing deteriorating market conditions are impacting sales in H2• Remain confident that the Adjusted EBITA margin for 2019 will improve, albeit
somewhat less than previously anticipated• Adjusted EBITA margin now expected to be in the range of 10.3% to 10.6%• The CSG of the growing profit engines (LED, Professional and Home combined) for 2019is expected to be flat
• The CSG of BG Lamps is expected to decline at a pace which is towards the higher end of
the previously indicated range of -24% to -21%
• We confirm that our FCF, excluding the positive impact from IFRS 16, is expected to be
above 5% of sales

20Q&A21

Currency movements positively impacted sales and negatively impact
Adjusted EBITA
Q3 19 Sales FX Footprint (% of total)

EUR
30%

Other
Currencies
36%

CNY
8%

22

USD
25%

Key observations•Positive FX effect on sales of +1.4%, largely driven byUS dollar appreciation•Negative FX effect on Adjusted EBITA of EUR -2m,and -30 bps on the Adjusted EBITA margin, mainly
from emerging market currencies•Our policy is to hedge 100% of committed FXtransactions and anticipated transactions up to 80%
in layers over the next 15 months

Net income decreased by EUR 19m to EUR 74m, mainly due to lower
operational profitability and higher restructuring costs
Key observations

From Adjusted EBITA to net income (in EURm)

123

Q3 18

Q3 19

Adjusted EBITA

191

169

- Restructuring-17-24- Acquisition related charges

0-1- Other incidental items-7-6EBITA

167

138

Amortization-24-25

EBIT

143

114

Net financial income / expenses-12-11

Income tax expense

-37

-28

Results from investments in associates-10Net income

9374

1

Income tax expense decreased by EUR 9m mainly due
to lower taxable earnings in Q3 19

Free Cash Flow of EUR 45m
Key observations

Free cash flow (in EURm)
Income from operations
Depreciation and amortization
Additions to (releases of) provisions
Utilizations of provisions
Change in working capitalInterest paid
Income taxes paid
Net capex
OtherFree cash flow
As % of sales

24

Q3 181435735-92-14-5-45-18364
4.0%

Q3 191147444-67-69-3-25-8-1445
2.9%•Free cash flow of EUR 45m versus EUR 64m last year•

Included a negative effect from the phasing of payables
and receivables of around EUR -60m, as previously
indicated at the end of Q2•

Positive impact of EUR 18m related to IFRS 16•

Restructuring pay-out of EUR 20m (Q3 18: EUR 39m)

•Contribution to our US pension fund of EUR 18m (Q318: EUR 26m) to reduce liabilities and to lower futureinterest expenses