Signify reports Q2 18 sales of EUR 1.5bn,
operational profitability of 8.4%

July 27, 2018

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 2017 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 Report2017. 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 adverse effect on the business, resultsof operations, financial condition and prospects of the Group or could cause the forward-looking events discussed in this document not to occur. The Group undertakes no duty to and will not necessarily update any of the forwardlooking statements in light of new information or future events, except to the extent required by applicable law.
Market and Industry Information
All references to market share, market data, industry statistics and industry forecasts in this document consist of estimates compiled by industry professionals, competitors, organizations or analysts, of publicly available information
or of the Group’s own assessment of its sales and markets. Rankings are based on sales unless otherwise stated.
Non-IFRS Financial Statements
Certain parts of this document contain non-IFRS financial measures and ratios, such as comparable sales growth, adjusted gross margin, EBITA, adjusted EBITA, EBITDA, adjusted EBITDA and free cash flow, and other related ratios,
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
to measures used by other companies under the same or similar names. A reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures is contained in this document. For further
information on non-IFRS financial measures, see “Chapter 18 Reconciliation of non-IFRS measures” in the Annual Report 2017.
Presentation
All amounts are in millions of euros unless otherwise stated. Due to rounding, amounts may not add up to totals provided. All reported data are unaudited. Unless otherwise indicated, financial information has been prepared inaccordance with the accounting policies as stated in the Annual Report 2017 and the semi-annual report 2018.
Market Abuse Regulation
This presentation contains information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
Changes to financial reporting following organizational changes to further align the organizational structure with the strategy
As of the first quarter of 2018, Signify reports and discusses its financial performance based on the recently announced portfolio changes. In March 2018, the company provided an update to show the effect of changes to thebusiness portfolio as well as changes to the allocation methods of centrally-managed costs and expenses and threshold for other incidental items as adjusting items when presenting certain non-IFRS measures such as Adjusted
EBITA.

2

Content
Business and operational performance by Eric Rondolat

Financial performance by Stéphane Rougeot
Outlook and conclusion by Eric Rondolat

Q&A3

Second quarter sales of EUR 1.5bn and operational profitability of 8.4%
Sales (in EURm) & comparable sales growth (in %)
-1.8%

1.3%

3.0%
-3.5%

-3.4%

1,699

1,684

1,892

1,501

1,537

2Q17

3Q17

4Q17

1Q18

2Q18

Adjusted EBITA (in EURm & as % of sales)
9.4%

10.5%

10.9%
8.4%
7.0%

4

159

176

207

106

130

2Q17

3Q17

4Q17

1Q18

2Q18

Key observations for 2Q18•

CSG decreased by 3.4% due to:• Weak performance in Home
• Challenging market and competitive dynamics• Global scarcity in certain electronic components•

Total comparable LED-based sales increased by 4.7%
and now represent 70% of total sales•

Adjusted currency comparable indirect costs down EUR
46m, or 150 bps as % of sales•

Adjusted EBITA margin of 8.4%, -80 bps impact of FX•Free cash flow of EUR -31m was higher than last year,
excluding the proceeds of a real estate sale in 2Q17

Lamps, LED and Professional improved their Adjusted EBITA margin

CSG %Adjusted
EBITA (EURm)

vs LY (EURm)

Adjusted
EBITA %vs LY (bps)

Lamps-16.4%

74

-19

21.2%

+50

LED

0.0%

47

-3

10.6%

+10

Professional

3.6%

55

+3

8.4%

+70

Home

-5.9%

-25

-19

-27.9%-2,190Signify

-3.4%

130*

-29*

8.4%

-100*

2Q18

*Adjusted EBITA was negatively impacted by currency effects of EUR 22m, and 80 bps on the Adjusted EBITA margin5

Lamps Adjusted EBITA margin improved by 50 bps driven by lower indirect
costs, ongoing procurement savings and increased productivity
Sales (in EURm) & comparable sales growth (in %)-18.6%-18.7%-17.6%-16.4%-20.7%

449

415

433

370

351

2Q17

3Q17

4Q17

1Q18

2Q18

Key observations for 2Q18•

Comparable sales decreased by 16.4%•

Continued market share gains•

Adjusted EBITA margin improved by 50 bps, driven by:• Lower indirect costs• Ongoing procurement savings• Increased productivity
more than offsetting adverse currency effects

Adjusted EBITA (in EURm & as % of sales)
20.7%

19.7%

21.2%

21.2%

16.3%

6

93

82

71

78

74

2Q17

3Q17

4Q17

1Q18

2Q18

LED Adjusted EBITA margin improved by 10 bps driven by procurementsavings and lower indirect costs, partly offset by price erosion and FX effects
Sales (in EURm) & comparable sales growth (in %)19.6%

Key observations for 2Q18•

Flat comparable sales growth on the back of a highcomparison base and more challenging market
conditions•

Volumes in LED lamps are gradually converging tomarket growth, while price erosion is slowing down•

Following several quarters of lower demand from OEMs,
LED Electronics comparable sales trend improved in thequarter•

Adjusted EBITA margin improved by 10 bps, driven by:• Procurement savings• Lower indirect costs
partly offset by price erosion and currency effects

13.1%
5.1%

3.6%

0.0%

477

465

492

444

443

2Q17

3Q17

4Q17

1Q18

2Q18

Adjusted EBITA (in EURm & as % of sales)
10.5%

7

10.7%

10.6%
9.8%

9.6%

50

50

48

43

47

2Q17

3Q17

4Q17

1Q18

2Q18

LED business highlights
Philips MyCare LED
launch in Asia

T-Bulb launch in
India

Private label wins

Universal T-LED
launch in Europe

Sensor readyelectronics•

Designed withpatented Interlaced
Optics technology••

15 tenders won
year to date

•

•

•

Reduces glare by
35%

•

•

Ongoing cost
optimization toremain competitive

Makes installingtubes as easy as it
used to be withfluorescent tubes•

We now offer thebroadest LED tubes
range for different
applications in theindustry

180W outdoor
driver North
America adds
diagnostics andasset tracking incost effective way•

EasySense interface
for warehouse andindustry•

8

Results in uniform
light that is more
comfortable on theeye

The Indiancustomer prefers a
Linear form factor
Better light spreadand decorative look

Professional Adjusted EBITA margin improved by 70 bps, mainly driven bylower indirect costs, partly offset by a more challenging pricing environment
Sales (in EURm) & comparable sales growth (in %)
13.7%

•

9.6%
5.4%
10.4%
-1.2%

6.5%

Key observations for 2Q18

4.2%

•
3.6%

3.2%

•

-3.0%
669

685

775

593

652

2Q17

3Q17

4Q17

1Q18

2Q18

CSG incl. KSA¹

CSG of 3.6%, with a robust performance in Europe andthe Rest of the World
Canada and the UK experienced difficult market
conditions
The comparable sales trend in the US improved
compared with preceding quarters

CSG excl. KSA¹

Adjusted EBITA (in EURm & as % of sales)
•
10.4%

12.1%
8.4%

7.7%

5.2%

52

9

71

94

31

55

2Q17
3Q17
4Q17
¹KSA: Kingdom of Saudi Arabia

1Q18

2Q18

Adjusted EBITA margin increased by 70 bps to 8.4%,
mainly driven by lower indirect costs, partly offset by amore challenging pricing environment

Professional business highlights
Interact Landmark win in
Ningbo, China

World’s largest
horticulture LED project

Launch of Interact Pro

Acquisition of lighting
company LiteMagic•

Façade of 37 buildings lit
with Philips Color
Kinetics••

Interact Landmark makes
individual lights run
flawlessly withdashboards for real-timemonitoring, control andmanagement

Intuitive dashboard andapp bring IoT connected
lighting to small andmedium enterprises••

Philips GreenPower LED
toplighting and Philips
GreenPower LED
interlighting improve
crop growth, quality andyields•Launched throughselected distributors

Expands our high-end
façade lighting portfoliowith a complementary
portfolio of luminaires
and control systems•

Size of Greenhouse isequivalent to 100 soccer
pitches•

Captures growth in the
mid segment of theurban market in China•

Closing expected in Q3

10•

Leveraging the HuearchitectureHome impacted by protracted effects of high inventory levels in US retail atthe end of 2017, which have now returned to more normalized levels
Sales (in EURm) & comparable sales growth (in %)
45.1%

53.9%

Key observations for 2Q18•

CSG of -5.9%, reflecting• Protracted effects of high inventory levels in US retailwhich have now returned to more normalized levels•

Home Systems CSG improved in Q2 compared to Q1,
notably in the US; sell-out continued to show substantial
growth•The Adjusted EBITA margin was -27.9%, due to• Lower fixed cost absorption• Investments in growth since 2Q17

25.3%
-6.4%

-5.9%

100

115

186

92

89

2Q17

3Q17

4Q17

1Q18

2Q18

Adjusted EBITA (in EURm & as % of sales)
9.5%
-0.4%
-6.0%
0

18

-6

-21
-23.1%

11

2Q17

3Q17

4Q17

1Q18

-25
-27.9%

2Q18

Home business highlights
Philips Hue Outdoor
launch in US and Europe

Philips Hue App 3.0

Philips Hue Sync

Geographical andchannel expansion•

Extends Hue featuresand functionality to any
outside area•

Introduces new featuresand enhances existing
app capabilities•

Enhances spatial
immersion of games,
movies and music•

Introduced Philips Hue inIndonesia, Malaysia andThailand•

Products span the Hue
white and Hue white andcolor ambiance ranges•

Available on all iOS andAndroid-based devices•

Works on any Windows
10 or macOS (Sierra andlater) computer•

Extended availability in
US retail distribution
channels•

Free to download

12

Content
Business and operational performance by Eric Rondolat

Financial performance by Stéphane Rougeot
Outlook and conclusion by Eric Rondolat

Q&A

13

Adjusted EBITA margin reduction due to lower gross margin and FX, partly
offset by lower indirect costs
Adjusted EBITA (in EURm)as %of sales

9.4%

8.4%

-100 bps
Gross margin-200 bps

159

5

-94

46

-22
-3

130

Other

Q2 2018

38

Q2 2017
14

Volume / Mix

Price

CoGS

Indirect Costs

CurrencyAdjusted currency comparable indirect costs decreased by 8%
as % of sales
In EURm
Adj. R&D-120 bps

32.3%

31.1%

• Indirect cost reduction of EUR 46m

549
85

Key observations• Positive currency impact of EUR 25m

-46
478
-25

73

• Executing multi-year transformation initiatives

to simplify the organization to:• Improve customer service and quality

Adj. SG&A• Become more efficient463• Capture scale benefits
405

Adjusted indirect
costs 2Q17

15

Indirectcost savings

Currency impact Adjusted indirect
costs 2Q18

• Save to invest

Benefits of our transformation initiatives already coming through in H1
Actions underway to drive benefits across multiple levers
LeversActions in H2 2018

Organization delayering, headcount reductions targetingtransversal and support functions; Insourced majority of high-cost
contractor roles (80% reduction in contingent workers)

Execution of headcount reduction already engaged; Continued
simplification of our organisation (i.e., consolidation, delayering);
Targeted hiring of key talent

Processes

Improved direct shipment capabilities; Optimization of online
portals, increasing touchless ordering >50% in key markets;
Enabled streamlined “buy online” with key wholesale partners

Streamlining our online consumer channel to reduce new productpublishing times by 75%+; Optimising positioning/pricing ofproduct portfolio; Further enhancements of our digital capabilities

Footprint

Manufacturing and warehousing footprint optimised; Reduced
office space reduced through consolidation / sublease; Offshored
select Finance, HR and IT activities

Further real estate consolidation; Establishment of additional
shared service capabilities to better leverage our global scale andconsolidate additional key functions

SourcingIndirect material spend reduction (>10% YoY YTD) via demand
control and supplier negotiations

Continued reduction in spend expected for rest of year via
additional supplier renegotiations, and further demand reductions

Products

Increased platform/modularity capabilities to accelerate new
product introductions (impact expected in H2); Simplified portfolio
to reduce low value products

Further simplification of our product portfolios across all businessareas; Continued standardization of our platforms to reduce
product components

Organization

16

Progress made in H1 2018

Working capital as % of sales decreased by 70 basis points y-o-y to 10.5%
driven by lower receivables
Working capital1 (in EURm & as % of sales)

Inventories (in EURm & as % of sales)

12.5%

16.2%

13.3%

14.1%
15.3%

10.5%
8.6%

-70 bps

1,137

924

957

1,009

3Q17

4Q17

1Q18

2Q18

879

597

612

694

3Q17

4Q17

1Q18

2Q18

9.4%

10.1%

11.2%

821

669

717

789

999

886

982

1,082

3Q16

4Q16

1Q17

2Q17

3Q16

4Q16

1Q17

2Q17

11.4%

17

9.0%

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

derivative financial assets & liabilities, and accrued liabilities

13.8%

12.5%

13.8%
15.3%

0 bps

Net debt increased by EUR 253m, mainly due to dividend distribution
In EURm

688
17
171

435

28
112

84

22

33
1

9

FCF: EUR -31m

Net debt
end of 1Q18

18

EBITDA

Change inworking
capital

Net capex

Change in Interest & Tax
Otherprovisions
FCF items*Share repurchases for the long term incentive plan**Other includes cash used for derivatives, FX effect on cash, cash equivalents and debt

Share
repurchases*

Dividend

Other**Net debt
end of 2Q18

Capital allocation policy
Cash available•

Continued free cash flow generation•

Managing our financial ratios to maintain afinancing structure compatible with aninvestment-grade profile

Cash uses
•
•
•

•
•
•

19

Dividend of EUR 171m – paid on 29 May 2018
Repurchased EUR 71m through share disposals by
our main shareholder – done in Feb 2018
Repurchased EUR 33m to cover performance
share plans – completed in Q2 2018
Second contribution of USD 50m to US Pension
Fund - planned for Q3 2018
Announced acquisition of LiteMagic; continue toseize non-organic opportunities primarily throughsmall- to medium-sized acquisitions
Share repurchases for 2018: decision made toincrease from EUR 150m to EUR 300m
• EUR 229m remaining for H2 2018

Cash available & uses in 2017 and 2018 (in EURm)

504
464
403
229
272
71
35

33

157

171

2017

2018

Cash dividend

Share Buy Back - LTI

Share Buy Back - share disposals

Share Buy Back - announcement

Free Cash Flow

Content
Business and operational performance by Eric Rondolat

Financial performance by Stéphane Rougeot
Outlook and conclusion by Eric Rondolat

Q&A

20

Almost 70% of sales is LED-based and growing by 5.3%

LED-based sales continue to grow by CAGR of 24%

LED-based sales of EUR 2.1bn in H1 18, CSG of 5.3%

(in % of total sales)

65%

69%

LED Home
8%(CSG -0.5%)55%

BG LED
42%(CSG 1.8%)

43%
34%
26%

2013

21

LED
Professional
50%(CSG 9.8%)
2014

2015

2016

2017

H1 18

Solid progress made in H1 2018 on reducing our cost base and increasing our
FCF generation
Adjusted indirect costs

Adjusted EBITA(in EURm and % of sales)(in EURm and % of sales)

Free Cash Flow
(In EURm)

33.0%
32.5%

8.4%
32.1%

-18

7.8%
7.7%

-37
-62*

1,116

1,119

976

269

286

235

H1 2016

H1 2017

H1 2018

H1 2016

H1 2017

H1 2018

H1 2016

H1 2017

H1 2018* excluding EUR 36m real estate proceeds in H1 2017

H1 2018
performance

22

Good progress made on cost
reduction
Adjusted currency comparable
indirect costs decreased by EUR
84m, or 120 bps as % of sales

Adjusted EBITA margin impacted by-60 bps of adverse currency effects

Strong cash management
Free cash flow improved compared
to last year, excluding EUR 36m realestate proceeds in H1 2017

Outlook 2018
Given the slow start to the year in Home, more challenging market and competitive dynamics in some geographies,
as well as global scarcity in certain electronic components, Signify has decided to revise its sales outlook for 2018
• Expect CSG in the second half to improve compared to the first half, however, thisimprovement is not expected to be sufficient to deliver positive CSG for the full year%

• Taking into account the anticipated cost savings in H2 2018, we maintain our earlier outlook to
improve the Adjusted EBITA margin from 9.6% in 2017 to 10.0-10.5% in 2018, albeit at the lower
end of the range• Continue to expect solid free cash flow in 2018, which will be somewhat lower thanthe level in 2017 due to higher restructuring payments
23

Q&A

24

Currency movements had a negative impact on sales and Adjusted EBITA
2Q18 Sales FX Footprint (% of total)

Key observations
•

EUR
30%

Other
Currencies
36%

CNY
8%

25

USD
26%

Currency movements had a negative impact onsales and on Adjusted EBITA• Sales impact from currencies of EUR -95m,
mainly from the US dollar• Adjusted EBITA impact of EUR -22m
• Signify policy is to hedge 100% of committed FXtransactions and anticipated transactions up to
80% in layers over the next 15 months

Net income of EUR 29m due to lower operational profitability and a realestate gain in 2Q17
Key observations

From Adjusted EBITA to net income (in EURm)
Adjusted EBITA- Restructuring- Acquisition related charges
1 - Other incidental items
EBITA
Amortization
EBIT
Net financial income / expenses
2 Income tax expense
Results relating to investments in associates
Net income

26

2Q17
159
-30
0
10
139
-28
111
-11
-26
-1
73

2Q18
130
-35
0
-17
77
-23
54
-13
-12
0
29

1

Real estate gain of EUR 15m in 2Q17

2

Income tax expense decreased by EUR 14m mainly
due to lower taxable earnings in 2Q18

Free Cash Flow of EUR -31m
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
Other
Free cash flow
As % of sales

27

2Q17
111
65

2Q18
54
58

•

Free cash flow of EUR -31m compared with EUR -44m,
excluding real estate proceeds of EUR 17m in 2Q17

49

53

•

-58
-136
-4
-27
-10
-15
-27
-1.6%

-62
-84
-6
-22
-22
-1
-31
-2.0%

Cash outflow related to restructuring EUR 33m and
EUR 10m for company name change