Q4 & Full Year 2018 results

February 1, 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 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 identifying other incidental items as adjusting items when presenting certain non-IFRS measures such as
Adjusted EBITA.

2

Content
Welcome & introduction by Eric Rondolat

Financial performance for Q4 18 by Stéphane Rougeot
FY 18 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A3

Welcome & introduction

%

4

•

LED-based sales grew by 2.5% in FY 18 on a comparable basis to 71% of sales•

Signify’s installed base of connected light points increased from 30m at YE17 to 44m at YE18•

Adj. EBITA margin improved by 50 bps to 10.1%, including a currency impact of -50bps•

Adj. indirect costs decreased by EUR 224m on a currency comparable basis, a reduction of 10%•

FCF of EUR 306m (FY 17: EUR 403m, incl. real estate proceeds of EUR 56m and EUR 40m lower restructuring
cash-out)•

EUR 1.1bn returned to shareholders since IPO, incl. proposed 2018 dividend of EUR 1.30 (+4%)•

Solid progress towards achieving our 2020 Sustainability goals•

Continue to focus on new growth platforms to strengthen our market leadership and progressively improve
our growth profile•

Execute concrete actions to further simplify thus improving our cost base•

Deliver in 2019 on the mid-term financial targets set at the time of the IPOOur transformation journey has made Signify the leading company in the
new era of the Lighting industry
Growing profit engines
LED

Professional

Home

Lamps

•

We have been building a new worldwide leader focusing on our growing profit engines, in line with ourstrategy to move to LED and connectivity, unleashing new growth platforms and new business models•

Signify is today the leader in LED lighting, and in connected lighting systems and services% of total sales from growing
profit engines
77%

62%

2015
5

Cash engine

Adj. EBITA margin development ofgrowing profit engines (in %)+500 bps

8.6%

2015

66%
31%

3.6%

2018

Adj. EBITA contribution fromgrowing profit engines (in %)

2018

2015

2018

•

We are increasing ourleadership inconventional
products, optimizing
cash to fund growth

Content
Welcome & introduction by Eric Rondolat

Financial performance for Q4 18 by Stéphane Rougeot
FY 18 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A6

Growing profit engines: Adjusted EBITA margin improved by 140 bps

7

vs LY (EURm)

Adjusted
EBITA %vs LY (bps)

69

+21

14.4%

+460

-6.9%

85

-9

12.0%

-10

Home

-2.6%

16

-2

8.9%

-60

Total

-4.0%

170

+11

12.4%

+140

Q4 18

CSG %

Adjusted EBITA

LED

0.2%

Professional(EURm)

LED Adjusted EBITA margin increased by 460 bps, mainly as a result of
indirect cost savings
Sales (in EURm) & comparable sales growth (in %)
5.1%

3.6%

0.0%

-1.9%

0.2%

492

444

443

444

481

4Q17

1Q18

2Q18

3Q18

4Q18

Key observations for Q4 18•

Comparable sales growth increased by 0.2%. An
improvement on a sequential basis due to LED lamps•

Adjusted EBITA margin increased by 460 bps, mainly as aresult of indirect cost savings

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

8

10.6%

9.8%

9.6%

48

43

47

53

69

4Q17

1Q18

2Q18

3Q18

4Q18

LED business highlights

9

Expanded glass filament
decorative range

Private label wins

Launched TrustSight G3
emergency driver inEuropeLaunched connected
EvoKit••24 tenders won in 2018•

Self-contained solution••

Ongoing focus on cost
optimization to remaincompetitive•

Operates LED modules
when mains power fails••

Un-switched mains line
continuously charges
TrustSight batteries

Uses 80% less energy
than traditional bulbs•

Lasts 10x longer•

Maintains classic look•

Provides cost-effective
solution for renovation
Offers connected
product with sensor atsame price as previous
non-connected version“Clickable” assembly in 2
minutes, saving > 30% ontransport volume

Professional Adjusted EBITA margin solid at 12.0% as continued indirect costsavings largely offset the impact from lower sales volumes
Sales (in EURm) & comparable sales growth (in %)
10.4%
3.2%

3.6%

Key observations for Q4 18•

CSG of -6.9%, on the back of a high comparison basewhich reflected strong market activity in various regions
and a large-scale project in the US• Deteriorated market conditions compared to Q4
2017, most notably in China and Europe•

Adjusted EBITA margin remained solid at 12.0% as
continued indirect cost savings largely offset the impact
from lower sales volumes

0.4%
-6.9%

775

593

652

675

715

4Q17

1Q18

2Q18

3Q18

4Q18

Adjusted EBITA (in EURm & as % of sales)
12.1%

11.7%

12.0%

8.4%
5.2%

10

94

31

55

79

85

4Q17

1Q18

2Q18

3Q18

4Q18

Professional business highlights
To illuminate Shanghai’sbuildings, bridges andrivers

To illuminate up to 15 of
London’s iconic bridges
by 2022

Installed architecturallighting on façade of
Beijing’s WTC tower

Installed Horti LED
lighting at French
cucumber growers

•

•

•

•

•
•

11

Installed more than
50,000 connected lightpointsManaged throughInteract Landmark
Our largest ever
implementation ofconnected architecturallighting••

To install more than
22,000 connected Color
Kinetics LED light points
Managed throughInteract Landmark
To provide lifecycle
services for the next 10
years

•

•

Provided 400,000 white
LED light points
Illuminated top by 88
sets of Color Kinetics LED
floodlights
Illustrates growing trend
to make cities more
attractive withconnected lighting
technologies••

Concerns two
greenhouses of 20,000
m² and 25,000 m²
Increased light levels
improve cucumber
production
Enables growers toincrease light levels
without increasing heat

Home’s sales performance reflects a high comparison base; profitability is
now back on track
Sales (in EURm) & comparable sales growth (in %)
53.9%

-1.4%

Key observations for Q4 18•

CSG of -2.6%, due to a high comparison base as US retailpartners built up inventories in H2 17•Adjusted EBITA of EUR 16m showed a significant
improvement compared with previous quarters,
reflecting:• Higher sales levels• Ongoing cost optimization

-2.6%

-6.4%

-5.9%

186

92

89

110

176

4Q17

1Q18

2Q18

3Q18

4Q18

Adjusted EBITA (in EURm & as % of sales)
9.5%

8.9%

-6.9%
18

16
-21
-23.1%

12

4Q17

1Q18

-25

-8

-27.9%
2Q18

3Q18

4Q18

Home business highlights
Extended Philips Hue
Outdoor range

Added Philips Hue and
Google Assistant sleep
and wake up feature

Updated Hue Power-on
Behavior in app

Added RunLessWire to
the Friends of Hue
program

•

•

•

•

•

13

Added sensor, wallmounted fixtures andnew path lighting
Expands number of
options to transform thehome•Brings voice commands
to Google Assistant’s
sleep and wake up
featureShowcases first
integration of the Philips
Hue sleep and wake up
feature with a digitalassistant•

Saves bulb’s last setting
when turned on and off
Also saves last setting
when power is lost•••

Adds more switches toPhilips Hue offering
Switches are selfpowered
Easy to setup
Fit seamlessly in homeinterior

Cash engine: Lamps maintained free cash flow at 22% of sales
Lamps Free Cash Flow bridge* (in EURm)
438

Key observations
22% of
sales

32

4
94

308

FCF 2017

14

Higher real estateproceeds in 2017

HigherDecrease in FCF
restructuring
cash-out in 2018

FCF 2018*Excluding non-allocated FCF items (e.g. tax, interest) that are accounted for in Other•

Our cash engine continued to deliver on its “last man
standing” strategy•

Further market share gains•

FCF of EUR 308m in FY 18•

FCF as % of sales remained relatively stable at 22%,
excluding real estate proceeds in 2017 and higher
restructuring cash-out in 2018

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

10.9%

12.4%

+150 bps
Gross margin-120 bps

207

83

(12)

Indirect Costs

Currency

(44)

(1)

214

Other

Q4 18

(78)
58

Q4 17

15

Volume / Mix

Price

CoGS

Working capital as % of sales decreased by 20 basis points y-o-y to 8.4%
driven by lower receivables
Working capital1 (in EURm & as % of sales)
10.5%
9.0%

612

1Q18

10.1%

16

Inventories (in EURm & as % of sales)

10.1%
8.4%

694

2Q18

11.2%

659

3Q18

536

4Q18

15.3%

15.2%

957

1.009

994

878

1Q18

2Q18

3Q18

4Q18

15.3%

16.2%

14.1%

-20 bps

12.5%

13.8%

13.8%

13.3%

8.6%

717

789

879

597

982

1.082

1.137

924

1Q17

2Q17

3Q17

4Q17

1Q17

2Q17

3Q17

4Q17

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

derivative financial assets & liabilities, and accrued liabilities+ 50 bps

Net debt decreased by EUR 148m, mainly due to solid FCF generation partly
used to complete the share repurchase program
In EURm
737

231

589
6
125
29
147

11

45

14
FCF: EUR+279m

Net debt
end of Q3 18
17

EBITDA

Change inworking
capital

Net capex

Change in Interest & Tax
Otherprovisions
FCF items

Sharerepurchases**Share repurchases for cancellation purposes**Other includes cash used for derivatives and acquisition of business, cash received for sale of business, FX effect on cash, cash equivalents and debt

Other**Net debt
end of Q4 18

Content
Welcome & introduction by Eric Rondolat

Financial performance for Q4 18 by Stéphane Rougeot
FY 18 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A18

Growing profit engines drive profitable growth as we move to LED,
connected systems and services
CSG (%)

Adj. EBITA margin (%)

Free Cash Flow* (in EUR m)

LED, Professional & Home

LED, Professional & Home

LED, Professional & Home

10.1%

8.3%

8.6%

370
353
47

5.4%

5.4%

20

10

-0.4%

2016

2017

2018

• CSG of -0.4% for FY18 reflects
high comparison base,challenging market
conditions, and an
unanticipated temporary
decline in Home

2016

2017

2018

• Profitability of our growing
profit engines increased by 30
bps in 2018, despite a negative
impact of Home (-100 bps)

FCF 2017

HigherHigherIncreasereal estate restructuring in FCF
proceeds cash-out inin 20172018

FCF 2018• The growing profit engines alreadygenerate a large FCF• FCF generation continued to increase in2018 despite an unanticipated negative
FCF from Home
*Excluding non-allocated FCF items (e.g. tax, interest) that are accounted

19

for in Other

Continue to invest in new growth platforms
Horticulture

Solar

LiFi

•

•

More than 1 billion people do nothave access to electricity grid•

Extra layer of security thanks to lineof-sight•

Solar is safe and sustainable
solution vs fuel-based alternatives
both for professionals andconsumers•

Able to connect many smart devices
and multiple users as LiFi bandwidth
is more than 1,000 times the size ofradio spectrum•

Market expected to grow more than
20% per year until 2024••

Sold more than 300,000 solar lights
in 2018

Ideal for use in radio frequency
sensitive areas or areas with poor orno WiFi connection•

Over 30 pilots across the world

Growers benefit from customercentric approach, and market
leading products and light recipes•

Better growth predictability, crop
quality and yields•

Market projected to grow by morethan 20% per year until 2025•

20

Expanded the world’s largest
horticulture LED installation toequivalent of 100 soccer pitches

Market dynamics impacted top-line in FY18, solid improvements in margins
Growing profit engines
LED CSG & Adj. EBITA margin (%)
CSG

12.8%

0.4%

Professional CSG & Adj. EBITA margin (%)
CSG

4.1%

-0.4%

Cash engine
Home CSG & Adj. EBITA margin (%)
CSG

41.1%

-3.8%
438

2.3%
9.9%

11.7%

8.3%

Lamps FCF (in EUR m)

9.5%

308

-8.1%

2017

21

2018

2017

2018

• Improving top-line in LED
electronics was offset by the
anticipated decline in LED
lamps• CSG impacted bydeteriorating market
conditions in various regions(China, Europe)• Margin improvement driven
by procurement savings andindirect cost savings• Margin improvement mainly
driven by lower indirect costs

2017

2018

• The decline mainly reflects
high demand from trade
partners in the US in H2 2017
which led to a high comparisonbase and lower sales levels in
H1 18 to allow for inventory
reductions at these trade
partners

2017

2018

• Continued to optimize
cash to fund growth: FCF
of our cash engine, Lamps,
was EUR 308m

Currency comparable adjusted indirect costs decreased by 10% in FY18
Adj. indirect cost savings per quarter (in EUR m)

Key observations• EUR 224m saved in FY18, down 10%, or 180

73
35

89
6
71

25

bps of sales, excl. FX

31.5%

65
7

29.8%

• Progress made in 2018:
•

83
38

46

58

•
2.194

1Q18

2Q18

3Q18

Currency effect on adj. indirect costs

22

Reduced non-manufacturing workforce by
10% through organization simplification

4Q18

1.896

Adj. indirect costsAdj. indirect costs
FY17
FY18

80% reduction in contingent workers•

Indirect material spend lowered by 50 bps
as % of sales•

Office space reduced by 12%•

Improved direct shipment and digital
capabilities

Sustainable operations

Sustainable
revenues

Our 2018 results
2018 result

Achievement

2020 target

Sustainable revenues

79.0%

Increasing energy
efficiency of portfolio

80%

LED lamps &luminaires delivered

1.7 billion(cumulativefrom 2015)

87% of our commitment>2 billion
completed

Carbon footprint

Net 146 kt CO2

49% decrease vs 2017
9 markets carbon
neutral

Net 0 kt CO2

Waste to landfill

2.4 kt17% decrease vs 2017

0 tonnes

Safe & healthy
workplace

TRC = 0.29

59% improvement from
TRC = 0.35
our 2015 baseline

Sustainable supply chain

93%
performancerate

93% of risk suppliers
passed the audit

90%
performancerate

Attractive shareholder return2018 dividend EUR 1.30 to be paid in 2019
Key observations

Dividend 2018 (in EURm)
Net income attributable to shareholders

263• Proposed dividend increase of 4% at EUR 1.30 per share;
pay-out ratio of 46%

Restructuring costs

118• Disciplined management of balance sheet

Incidentals*

10

Tax impact-34

Continuing net income

357

Total dividend

164

Total number of outstanding shares (million)**126

FY 2018• Continue to look for non-organic growth opportunities
primarily through small- to medium-sized acquisitions• If in the course of the year, the funds needed for nonorganic growth opportunities are substantially less thanthe capital available, we will consider other use of ourcapital, which includes returning excess cash toshareholders through share repurchases

EUR 1.30 per share

24• Other incidentals consists of acquisition-related charges, separation costs and other incidentals** Excluding treasury shares

EUR 1.1bn returned to shareholders since IPO, incl. proposed 2018 dividend
Cash available•

Continued free cash flow generation•

Managing our financial ratios to maintain a financing
structure compatible with an investment-grade profile

Cash uses since IPO••

Dividend of EUR 492m since the IPO, including proposed
dividend of 2018
Seized non-organic growth opportunities, e.g. LiteMagic,
Stack Lighting, PointGrab•

Contributed EUR 114m to US Pension Fund since the IPO•

Repurchased shares for EUR 68m to cover performance
share plans•

Repurchased shares for EUR 563m for cancellation

25

Return to shareholders since IPO (in EURm)
1,127

1,055

563

492

Share repurchases
for cancellation

Dividend

Cash generation 2016-2018 Shareholder returns since IPOOur financial measures have significantly improved over the last five years
Transition fromconventional to LED

Significantly improved
profitability

Transition to an assetlight business model

Strong FCF generation

Total LED sales(as % of sales)

Adjusted EBITA margin

Gross capex as % of sales

FCF as % of sales

2.8%

71%

+370
bps

+19%
CAGR

4.8%

10.1%

1.3%
~1.0%
26%
6.4%

2013

2018

In 2018, LED-based
sales grew by 2.5% on
a comparable basis
26

2013

2018

Substantial
improvement in
Adjusted EBITA margin

2013

2018

Gross capex as % ofsales has beenstrongly reduced

2013

2018

Solid FCF generation:
EUR 306m of FCF in2018

Content
Welcome & introduction by Eric Rondolat

Financial performance for Q4 18 by Stéphane Rougeot
FY 18 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A

27

Outlook 2019
• 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 11.0-13.0%(as set at the time of the IPO in May 2016)• Expect free cash flow to be above 5% of sales28

Signify Path to value – Targeting Adj. EBITA margin of 11-13% by 2019
Signify

11-13%+90-290 bps
10.1%+370bps
6.4%

2013

2018

2019

Growing profit engines

Cash engine
Home

Professional

LED

Lamps

11-14%
11.7%

21.1%

10-12%
16.4%

9.5%

2.2%

-2.1%
2013

Expected margin
improvement
29

2013
2018

Reached target
range

> 16%

5-8%

2018

2019
-11.6%
20132019+150 to 450 bps

2013

-8.1%

2018

+1,310 to 1,610
bps

2019

2018

2019

Q&A

30

71% of sales is LED-based and growing by 2.5% on a comparable basis
LED-based sales continue to grow by CAGR of 22%(in % of total sales)

71%
65%

LED-based sales of EUR 4.5bn in FY 18, CSG of 2.5%
LED Home
10%(CSG 0.8%)
BG LED
40%(CSG 0.4%)

55%
43%
34%
26%

LED
Professional
50%(CSG 4.4%)
2013

31

2014

2015

2016

2017

2018

Currency movements had a negative impact on sales and Adjusted EBITA
Q4 18 Sales FX Footprint (% of total)

EUR
32%

Other
Currencies
36%

CNY
7%

32

USD
25%

Key observations•

Currency movements negatively impacted sales andAdjusted EBITA•

Sales impact of EUR -32m, mainly coming from thedevaluation of emerging market currencies•

Adjusted EBITA impact of EUR -12m, and -50 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 improved to EUR 119m, mainly as a result of improved
operational profitability and lower restructuring
Key observations

From Adjusted EBITA to net income (in EURm)
Q4 17

Q4 18

Adjusted EBITA

207

214

- Restructuring

-75

-27

0

-1

- Other incidental items

-12

11

EBITA

119

197

Amortization

-45

-24

EBIT

75

173

Net financial income / expenses

-12

-7

Income tax expense

-25

-47

Results from investments in associates

0-1

Net income

38

119

- Acquisition related charges
1
2

3

33

1

Gain of EUR 16m associated with tax related reliefs
linked to the separation2

Last year’s amortization included an impairment ofother intangible assets related to Professional

3

Income tax expense increased by EUR 22m mainly due
to higher taxable earnings in Q4 18

Free Cash Flow of EUR 279m
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

34

4Q17
75
88
99
-61
259
-5
-18
-22
18
434
22.9%

4Q18
173
58
28
-73
147
-7
-22
-14
-11
279
16.2%

•

Free cash flow of EUR 279m as a result of betterworking capital management throughout the year•

In Q4 17, we started with a high level of working capital,
most notably in inventories•

Free cash flow in Q4 18 included higher restructuring
cash-out of EUR 36m (Q4 17: EUR 25m) and an outflow
of EUR 5m related to the company name change