Q2 2019 results

July 26, 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. 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
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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 2018.
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 2018 and the semi-annual report 2019.
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2

Content
Business and operational performance by Eric Rondolat
Financial performance by Stéphane Rougeot

H1 19 highlights and 2019 outlook by Eric Rondolat
Q&A3

Second quarter sales of EUR 1.5bn and operational profitability of 9.0%
Sales (in EURm) & comparable sales growth (in %)•CSG decreased by 6.1% due to:• Lower level of market activity, most notably in Europe• Non-recurring country-specific developments in Saudi
Arabia and India in Professional

-3.4%

-3.2%

1.537

1.594

1.726

1.478

1.477

•

LED-based sales grew by 0.2%, accounting for 77% of sales

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

•

Installed base of connected light points increased from 47m
in Q1 19 to 50m in Q2 19•

Currency comparable adjusted indirect costs down EUR 37m,
or 60 bps as % of sales•

Adjusted EBITA margin improved by 60 bps to 9.0% including
a currency impact of +20 bps•

Net income improved by 73% to EUR 50m•

Free cash flow amounted to EUR 121m, incl. EUR 17m
positive impact from IFRS 16, mainly driven by higher income
and phasing of payables and receivables

-3.3%
-7.3%

-6.1%

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

12.4%
7.8%

8.4%

4

Key observations for Q2 19

9.0%

130

191

214

115

133

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Growing profit engines: CSG of -2.3% and Adjusted EBITA margin
improvement of 200 bps

5

vs LY (EURm)

Adjusted
EBITA %vs LY (bps)

53

+6

12.0%

+140

-5.6%

55

+1

8.8%

+40

Home

19.0%

-8

+17

-7.8%

+2,010

Total

-2.3%

100

+24

8.5%

+200

Q2 19

CSG %

Adjusted EBITA

LED

-1.8%

Professional(EURm)

LED Adjusted EBITA margin improved by 140 bps, driven by ongoingprocurement savings and lower indirect costs
Sales (in EURm) & comparable sales growth (in %)
0.0%

-1.9%

0.2%

-0.2%

-1.8%

443

444

481

449

445

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

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

11.9%

12.0%

10.6%

6

47

53

69

54

53

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Key observations for Q2 19•

Comparable sales declined by 1.8%
• LED lamps delivered a solid performance• LED electronics continued to be impacted by lower
customer demand, most notably in Europe•

Adjusted EBITA margin improved by 140 bps, driven by:• Ongoing procurement savings• Lower indirect costs

LED business highlights
Launched UniversalFit
TLED in the Americas

Launched flagship dualzone Ceiling in China

Launched FlexTune
system for tunable white

Launched best-in-classdrivers for linear
applications in Europe

•

•

•

•

•
•

7

Leverages bestcompatibility technology
with electronic andmagnetic ballasts
Simplifies installation
Available in the US andCanada since April••

Showcases distinctive
patented industrial
design and dual zone
technology
Helps consumers tocreate the perfectambiance at home
Available in China since
April

•

Provides design
flexibility, control
precision, and simplicity
for tunable white lighting
Includes an all-new
digital LED driver with
Sensor Ready (SR)interface, a portfolio ofmatching modules and a
fixture-mounted sensor•

Combines latest digital
controls with highenergy efficiency andflexibility
Addresses increasing
demand for sustainable
lighting with low standby
power consumption,
built-in energy meteringand diagnostics

Professional Adjusted EBITA margin improved by 40 bps, mainly driven by
procurement and indirect cost savings
Sales (in EURm) & comparable sales growth (in %)3.6%

Key observations for Q2 19
•

0.4%

-1.5%
-6.9%

-5.6%

•
•

•

652

675

715

599

632

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

CSG of -5.6%, due to a lower level of market activity inEurope, and the impact of non-recurring developments
Robust performance in the Americas and China
Softening demand for public & outdoor projects, mostnotably in Europe
Solid order backlog and project pipeline for H2 19, mostnotably in the Middle East and in façade lighting in China

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

•

12.0%
8.8%

8.4%
5.3%

8

55

79

85

32

55

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Adjusted EBITA margin increased by 40 bps to 8.8%, asprocurement and indirect cost savings more than offset
the negative impact of price and mix

Professional business highlights
Launched Trulifi: theworld’s fastest
commercial LiFi systems

Launched BrightSites:
enabling the smart city
infrastructure

Added new Philips
GreenPower LEDs tohorticulture portfolio

Installed Philips SunStay
solar street lights in parkin Seville

•

•

•

•

•

•
9

Provides highly reliable
and secure high-speed
wireless communication
through existing andfuture lighting
infrastructure
Added new customers,
including Globalworth
and Claerhout
Operating >60 pilots
worldwide••

Offers a ready platform
for lighting and city-wide
4G/5G and WiFi
infrastructure
Accommodates wide
variety of IoT sensors
Already installed inseveral cities, including
in Los Angeles and San
Jose in California•

LED toplighting compact
makes it easy to switchfrom high-pressure
sodium to LEDs, re-using
existing infrastructure
LED production module
3.0 helps growers
optimize multilayer crop
growth and adapt color
spectra and light levels•

Helps Seville, a citycommitted tosustainability andecology, reduce energy
costs and improve its
carbon footprint
Enhances safety ofvisitors of Infanta Elena
ParkHome – continued strong growth and improvement in profitability versus
last year
Sales (in EURm) & comparable sales growth (in %)
24.4%

-5.9%

-1.4%

19.0%

Key observations for Q2 19•

CSG of 19%, on the back of strong performance inEurope driven by robust demand for connected offers•

Adjusted EBITA of EUR -8m showed a significant
improvement compared with Q2 18•

The margin development in the quarter reflects low
fixed cost absorption and was impacted by relatively
higher costs to prepare for the high season in H2

-2.6%
176

89

110

Q2 18

Q3 18

Q4 18

115

107

Q1 19

Q2 19

Adjusted EBITA (in EURm & as % of sales)
16

-6.9%

8.9%

-8

-6.1%

-7.8%

-7

-8

Q1 19

Q2 19

-25

-27.9%

10

Q2 18

Q3 18

Q4 18

Home business highlights
Launched Philips Hue
Bluetooth, making smart
lighting more accessible

Released ‘Zones’ as partof the updated Philips
Hue app

Added Lutron to the
Friends of Hue program

Added Feller’s Smart
Light Control to the
Friends of Hue program

•

•

•

•

•

•

11

Enables direct lightcontrol from a smart
deviceProvides consumers withan easy entry into smart
home lighting market
More products to be
Bluetooth-enabled later
this year and in 2020•

Allows consumers togroup lights into a zone,
in addition to alreadyexisting rooms
Gives consumers evenmore flexibility andcontrol over their smart
home lighting throughthe Philips Hue app••

Introduces Smartdimmer that fits overlegacy wall switches
Is designed for Philips
Hue systems, and can be
set up in Hue app
Allows consumers tocontrol Hue lights
directly from the wall••

Works with the Huebridge and app
Is equipped with batteryfree, energy harvesting
technology
Blends into the interior
design as it comes in theclassic Feller EDIZIOdue
designCash engine – Lamps Adjusted EBITA margin remained solid at 19.5%
Sales (in EURm) & comparable sales growth (in %)-11.1%-16.4%-19.3%-17.9%Key observations for Q2 19•

Comparable sales decreased by 20.3%•

Continued market share gains•

Adjusted EBITA margin remained solid at 19.5% as aresult of ongoing indirect cost reductions-20.3%

351

361

345

309

286

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Adjusted EBITA (in EURm & as % of sales)
24.6%
21.2%

20.5%

19.5%

17.5%

12

74

89

60

63

56

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Acquisition of 51% stake in Klite further strengthens our strategic position in
LED market
Signify announced the acquisition of Klite:• We agreed to acquire a 51% stake in leading provider of high-quality and costefficient LED lamps and luminaires• Manufactures a wide range of LED lamps and luminaires, for a large, global
customer base
• Based in Zhejiang, China, generated around EUR 250m in sales to thirds in 2018
This acquisition will bring additional scale and innovation power to Klite and:• Allows Klite to generate further cost efficiencies and enhance its productdevelopment, including connected lighting offerings• Strengthens Klite’s position to serve branded and private label customers with
innovative and cost-efficient products
Through this acquisition, Signify will be able to:• Deliver cost-efficient innovations to customers faster, incl. connected lighting• Strategically strengthen our position in the supply chain of LED lamps andluminaires• Capture value from the growing private label segment
13

Acquisition of ONCE & iLOX to capture attractive growth potential in animalcentric lighting
Signify announced the acquisition of ONCE and iLOX:• Market leaders in design & manufacturing of animal-centric lighting systems• Animal-centric lighting reduces stress and improves feed conversion, resulting in
better quality and enhanced production for the farmer• The companies have solid relationships with key customers and a wellestablished sales organization in US and Europe

Through this acquisition, we will be able to:• Accelerate our business development cycle compared to organic growth• Generate growth in nascent and growing market for animal-centric lighting, inparticular in the US and Europe• Add strong IP and installed base14

Successful integration of LiteMagic
Signify acquired LiteMagic on August 1, 2018•

Offers a broad portfolio of cost competitive façade luminaires and controls in China•

Combines Signify’s global brand power, technology-driven product portfolio andglobal network with LiteMagic’s flexible product customization, cost focus and fasttime-to-market capabilities

15

Acquisition criteria

Achievements

Sales & portfolio synergies••

Developed façade lighting offering for ~25 countries outside China
Generated double-digit sales growth in H1 19

Cost synergies••

Bill of material reduced in line with objective
Identified opportunities to improve productivity

Working capital reduction•

Working capital reduction 8% ahead of plan

Successful post-merger
integration•••

People integration completed within 100 days
Completed IT & reporting readiness within 1 month
PMI costs 25% less than budgetedContent
Business and operational performance by Eric Rondolat
Financial performance by Stéphane Rougeot

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

16

Signify Adj. EBITA margin: improvement driven by ongoing cost reductions
Adjusted EBITA (in EURm)as %of sales

8.4%

130

-33
-59

Q2 18

17

9.0%

+60 bpsVolume / Mix

Price

37

6

-2

133

Indirect Costs

Currency

Other

Q2 19

53

CoGS

Adjusted currency comparable indirect costs decreased by 8%
Adjusted indirect costs

Last twelve months adjusted indirect costs(in EURm and as % of sales)(in EURm and as % of sales)

31.1%

30.4%

-70 bps

478

Adj. R&D

449

73

-37

9

32.0%
31.5%

67

31.0%

2,259
2,193

29.8%
2,051

29.2%

Adj. SG&A
405-280 bps

1,897
1,834
383

EUR 425m
reduction
Adjusted indirect
costs Q2 18

18

Indirectcost savings

Currency impact

Adjusted indirect
costs Q2 19

June 17

Dec 17

June 18

Dec 18June 19

WoCa decreased by 250bps as % of sales, reflecting continued focus on
improving WoCa and includes phasing of payables & receivables
Working capital1 (in EURm & as % of sales)
10.1%
8.4%

Inventories (in EURm & as % of sales)
15.2%

9.3%
8.0%

659

536

587

503

Q3 18

Q4 18

Q1 19

Q2 19

-250 bps

12.5%
10.5%

19

13.8%

14.9%

15.9%

994

878

943

999

Q3 18

Q4 18

Q1 19

Q2 19

13.3%

14.1%

16.2%

15.3%

8.6%

9.0%

879

597

612

694

1.137

924

957

1.009

Q3 17

Q4 17

Q1 18

Q2 18

Q3 17

Q4 17

Q1 18

Q2 18

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

derivative financial assets & liabilities, and accrued liabilities+ 60 bps

Net debt increased by EUR 76m, mainly due to dividend distribution, partly
offset by strong free cash flow generation
In EURm

865

789

30

164

-147
-56
27

24

26

8

FCF: EUR +121m

Net debt
end of Q1 19

EBITDA

Change inworking
capital

Net capex

Change in Interest & Tax
Otherprovisions
FCF items

Dividend

Other*Net debt
end of Q2 19*Other includes cash paid for acquisition of businesses, new lease liabilities (following the application of IFRS 16 for new lease contracts signed in 2019),

20

and FX effect on cash, cash equivalents and debt

Content
Business and operational performance by Eric Rondolat
Financial performance by Stéphane Rougeot

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

21

Growing profit engines improved profitability by 200 bps in H1 2019, witheach Business Group contributing
CSG (%)

Adj. EBITA margin (%)

Adj. EBITA contribution (%)

LED, Professional & Home

LED, Professional & Home

LED, Professional & Home

7.7%

6.5%

7.6%

60%

5.6%
44%

46%

2.0%

H1 17

H1 18

-0.7%
H1 19

• CSG of -0.7% for H1 19
reflects lower level of market
activity, most notably inEurope, which impacted
Professional and LED
electronics
22

H1 17

H1 18

H1 19

• Profitability of our growing
profit engines increased by 200
bps in H1 19, with each BG
contributing to theimprovement

H1 17

H1 18

H1 19

• The growing profit engines
contributed 60% to Adjusted EBITAin H1 19, a significant step-up fromprevious years

Solid progress made in H1 19 on improving profitability and FCF generation
Adjusted indirect costs

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

Free Cash Flow(in EURm)
175

33.0%
32.1%
8.4%

8.4%

141**

30.9%
7.7%

-37
1.119

976

914

286

235

247

-62*

H1 17

H1 18

H1 19

H1 17

H1 18

H1 19

H1 17

H1 18

H1 19

*excluding EUR 36m real estate proceeds in H1 2017**excluding EUR 34m of positive impact from IFRS 16

H1 19 performance

Solid progress made on cost
reductions
Adjusted currency comparable
indirect costs decreased by EUR
77m, or 120 bps as % of sales

Adjusted EBITA margin improved by
70 bps, despite currency impact of-60 bps

Strong cash management
Significant underlying1 improvementof FCF in H1 2019

1excl. positive impact from IFRS 16 and phasing of

23

payables and receivables

Project Horizon is the next phase on our Road to Excellence, aimed at driving
growth, profitability, cash and execution capabilities
Key drivers

GrowthProfitability

CashExecution
capabilities andOrganizational
Health
24

Examples of Initiatives

Expected impact•

Address potential market white spaces and drive sales in key growth areas• Higher revenues•

Improve sales performance management•

Leverage in- & external insights to optimize pricing, and reduce complexity of productportfolio• Better sales productivity•

Standardize, automate and digitalize internal processes• Lower costs•

Increase manufacturing and supply chain productivity• Improved productivity•

Optimize receivables and payables policies while using local and global best practices•

Optimize supply chain operating model•Pursue engagement culture centered around speed, collaboration and accountability•

Increase focus on continuous and sustainable lean improvements• Improved portfolio profitability• Improved DSO/DPO• Lower inventories• Better delivery reliability• Higher employee engagement• Increased effectiveness andefficiency in execution

2019 Outlook confirmed• Our growing profit engines (LED, Professional and Home combined), are expected todeliver a CSG in the range of 2 to 5%• Our cash engine, Lamps, is expected to decline at a slower pace than the market in
the range of -21 to -24% on a comparable basis.

%• For total Signify, we aim to reach an Adjusted EBITA margin within the range of 11 to 13%(as set at the time of the IPO in May 2016)• We expect free cash flow, excluding the positive impact from IFRS 16, to be above
5% of sales

25

Q&A

26

Currency movements positively impacted sales and Adjusted EBITA
Q2 19 Sales FX Footprint (% of total)

EUR
29%

Other
Currencies
35%

CNY
9%

27

USD
27%

Key observations•

Positive FX effect on sales of +1.7%, largely driven by
US dollar appreciation•

Positive FX effect on Adjusted EBITA of EUR 6m, and+20 bps on the Adjusted EBITA margin, mainly due to
YoY FX result differential and positive impact fromemerging 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 improved by EUR 21m to EUR 50m

Key observations

From Adjusted EBITA to net income (in EURm)
Q2 18

Q2 19

Adjusted EBITA

130

133

- Restructuring

-35

-14

0

-1

- Other incidental items

-17

-13

EBITA

77

104

Amortization

-23

-24

EBIT

54

80

Net financial income / expenses

-13

-12

Income tax expense

-12

-19

Results from investments in associates

01

Net income

2950- Acquisition related charges

1

28

1

Income tax expense increased by EUR 7m mainly due
to higher taxable earnings in Q2 19

Free Cash Flow of EUR 121m
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

29

Q2 18
54
58
53
-62
-84
-6
-22
-22
-1
-31
-2.0%

Q2 19
80
67
29
-53
56
-6
-20
-27
-8
121
8.2%

•

Free cash flow of EUR 121m versus EUR -31m last year,
mainly driven by reduction in working capital which
included the impact of phasing of payables andreceivables•

The net effect of phasing is estimated to represent
around half of the free cash flow in the quarter•

Free cash flow in Q2 19 included a positive impact of
EUR 17m related to IFRS 16 and restructuring cash-out
of EUR 27m (Q2 18: EUR 33m)

More than 75% of total sales is LED-based

LED-based sales accounted for 76% of total sales in H1 19

LED-based sales of EUR 2.2bn in H1 19, CSG of +1.9%(in % of total sales)

71%

76%

65%

LED Home
9%(CSG 28.7%)55%

BG LED
40%(CSG -1.0%)

43%
34%
26%

2013

30

2014

2015

2016

2017

2018

H1 2019

LED
Professional
51%(CSG -0.6%)