Q3 2018 results

October 26, 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 identifying 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

Third quarter sales of EUR 1.6bn and operational profitability of 12.0%
Sales (in EURm) & comparable sales growth (in %)
1.3%

3.0%
-3.5%

-3.4%

Key observations for 3Q18•

CSG decreased by 3.2% due to:• High comparison base
• Challenging market dynamics in several geographies•Total comparable LED-based sales now represent 70% of sales•

Currency comparable adjusted indirect costs down EUR 58m,or 260 bps as % of sales•

Adjusted EBITA margin improved by 150bps to 12.0% despite-60 bps impact of FX•Free cash flow of EUR 64m versus EUR -5m in Q3 17 (incl. EUR
21m real estate proceeds), mainly driven by an improvement
in working capital•

Sustainability highlights:• Ranked Industry Leader in the Dow Jones Sustainability
Index and by Sustainalytics• Achieved carbon neutrality for our business in the US andCanada-3.2%

1,684

1,8921,501

1,537

1,594

3Q17

4Q17

1Q18

2Q18

3Q18

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

12.0%

10.9%
7.0%

48.4%

176

207

106

130191

3Q174Q17

1Q18

2Q18

3Q18

Improved Adjusted EBITA margin in Lamps, LED and Professional

vs LY (EURm)

Adjusted
EBITA %vs LY (bps)89+724.6%

+490

-1.9%

53+312.0%+130

Professional

0.4%

79+811.7%

+130

Home

-1.4%

-8-8-6.9%-650

Signify

-3.2%

191

+15*12.0%

+150*

3Q18

CSG %

Adjusted EBITA

Lamps-11.1%LED(EURm)*Adjusted EBITA was negatively impacted by currency effects of EUR 14m, and 60 bps on the Adjusted EBITA margin5

Lamps Adjusted EBITA margin improved by 490 bps, driven by halogen ban
in Europe and solid performance in consumer lamps and specialty lighting
Sales (in EURm) & comparable sales growth (in %)-11.1%-16.4%-18.7%-17.6%

415

433

370

351

361

3Q17

4Q17

1Q18

2Q18

3Q18

-20.7%Key observations for 3Q18
•Comparable sales decreased by 11.1%•Benefited from:• the halogen bulb ban in Europe• solid performance in consumer lamps and certain
specialty lighting categories•

Continued market share gains•

Adjusted EBITA margin improved by 490 bps, driven by:• Better CSG performance• Reduction of indirect costs

Adjusted EBITA (in EURm & as % of sales)
24.6%
19.7%

21.2%

21.2%

16.3%

682

71

7874

89

3Q17

4Q17

1Q18

2Q18

3Q18

LED Adjusted EBITA margin improved by 130 bps, driven by procurementsavings and lower indirect costs
Sales (in EURm) & comparable sales growth (in %)Key observations for 3Q18•Comparable sales growth declined by 1.9%
• Trend in LED electronics CSG continued to improve• CSG of LED lamps was impacted by a highcomparison base and a soft level of activity withretailers in Europe and the US•

Adjusted EBITA margin improved by 130 bps, driven by:• Procurement savings• Lower indirect costs
partly offset by price erosion which is slowing

13.1%
5.1%

3.6%

0.0%

-1.9%

465

492

444

443

444

3Q17

4Q17

1Q18

2Q18

3Q18

Adjusted EBITA (in EURm & as % of sales)
12.0%
10.7%

710.6%

9.8%

9.6%5048434753

3Q17

4Q17

1Q18

2Q18

3Q18

LED business highlights
Launched Interact ReadyMaster Connect LEDtube

Introduced the newCeilingSecure LED
downlighter in India

Launch of controller for
sensor-ready outdoor
luminaires

Private label wins••••

18 tenders won year todate•Ongoing focus on cost
optimization to remaincompetitive•

8Enables wireless
integration with a varietyof control devices suchas sensors and switches
Work seamlessly with
Interact Pro

The modular design
features a replaceable
LED module that can beeasily installed without
any damage to the falseceiling•

Adds connectivity andsensing to outdoor
luminaires
Allows customers toremotely install an on/off
switching and dimming
schemeProfessional Adjusted EBITA margin continued to improve with an increaseof 130 bps, mainly driven by lower indirect costs
Sales (in EURm) & comparable sales growth (in %)
6.5%

10.4%
3.2%

3.6%

Key observations for 3Q18
•

0.4%

•685

775

593

652

675

3Q17

4Q17

1Q18

2Q18

3Q18

Adjusted EBITA (in EURm & as % of sales)
12.1%•11.7%

8.4%

10.4%
5.2%97194315579

3Q174Q17

1Q18

2Q18

3Q18

CSG of 0.4%, on the back of a high comparison base inQ3 2017
Lower level of market activity, most notably in Europeand China, and a slowdown in medium- to large-sized
projects in the US

Adjusted EBITA margin increased by 130 bps to 11.7%,
mainly driven by lower indirect costs

Professional business highlights
New Philips Greenpower
LED for crops that needmore light

Philips Color Kinetics
illuminates HuêInteract Hospitality
installed at Swissotel
The Stamford Singapore

Navigant ranks us asworld leader in smart
street lighting•

•

•

••

10

Will help greenhouse
growers to improve
growth of vegetables,
fruit and flowers
The high output modules
will have a lifetime of
35,000 hours•

The imperial city has
been revitalized with thelatest lighting technology
New lighting preserves
and honors the historicalvalue of the monument
and creates a special
attraction at night•

Enables guests topersonalize lighting,temperature and makeroom service requests
Allows managers toreduce electricity bills
while ensuring rooms
match guest preferences•

Signify ranked top
scoring leader in newreport
Navigant Research
estimates annual smart
street lighting revenue togrow to nearly USD
8.3bn globally by 2027(versus USD 837m in2018)

Sales performance in Home reflects a high comparison base; gross marginand costs are back to normalized levels
Sales (in EURm) & comparable sales growth (in %)
45.1%

53.9%

-6.4%

-5.9%

-1.4%

115

186

9289

110

3Q17

4Q17

1Q18

2Q18

3Q18

Key observations for 3Q18•

CSG of -1.4%, due to• A high comparison base as US retail partners started
to build-up inventories in Q3 2017
• Sales performance improved sequentially as activity
returned to more normalized levels•

Adjusted EBITA of EUR -8m showed a significant
improvement compared with Q1 and Q2, reflecting:• More normalized activity• Ongoing adaptation of our cost base

Adjusted EBITA (in EURm & as % of sales)
9.5%
-0.4%
-6.9%
018-21-23.1%

113Q17

4Q17

1Q18-25-8-27.9%
2Q18

3Q18

Home business highlights
6 new partners added tothe Friends of Hueprogram

Expanding the Philips
Hue outdoor offeringwith the Light StripNew Philips Hueluminaires for the livingroom

Added Philips Huebathroom range•Wall switches: BuschJaeger and Illumra••••Luminaires: Kichler,MAKRIS by Imoon,
Koizumi and John Lewis

The new flexible light
strip complements theexisting Philips Hue
outdoor portfolio and isperfect for accentuating
outdoor areas••

12Philips Hue Play:versatile light bar totransform your sittingroom
Philips Hue Signe: Paint
your walls with light
Philips Hue Ensis &Flourish: new luminaires
for delightful dining•

The new Philips Hue
Adore bathroom range
gives you a luxurious
home spa experience
Seven new whiteambiance luminaires are
all pre-set with various
light recipes

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 improvement mainly driven by indirect cost savings
Adjusted EBITA (in EURm)
as %of sales

10.5%

12.0%

+150 bps
Gross margin-90 bps176(1)58(14)

Indirect Costs

Currency

(76)

0191

OtherQ3 201847

Q3 2017

14

Volume / MixPriceCoGSFluctuations in adj. gross margin mostly driven by FX and a high comparison
baseAdj. gross margin trend over time (as % of sales)
40.0%

39.9%

38.7%

3Q17

4Q17

1Q18

2Q18

3Q18

10-40-110-140-50-90-60-200

15Adj. gross margin of 39.1% reduced by 90 bps mainly
due to currency effects of -50 bps and a highcomparison base•

Gross margin in Q1 and Q2 was mostly impacted bylower sales levels in Home

38.5%

YoY change in adj. gross margin (in basis points)

-120

•
39.1%
37.9%

2Q17Key highlights

1Q182Q18
Underlying change in gross margin (in bps)

3Q18
FX effect (in bps)

Currency comparable adjusted indirect costs decreased by 11% in Q3
Adj. indirect cost savings per quarter (in EUR m)

Key observations
20967
73

3565
714
12

3Q1758
38

46

20

4Q17
Net savings (excl. currency effect)

16142

22

1Q18

2Q18

• YTD realized EUR 142m of cost savings on a• Executing multi-year transformation initiatives

4226

down EUR 58m
currency comparable basis

7125• Currency comparable adjusted indirect costs

3Q18

Currency effect on adj. indirect costs

YTD 18to simplify the organization to:• Improve customer service and quality• Become more efficient• Capture scale benefits• Save to invest

Working capital as % of sales decreased by 240 basis points y-o-y to 10.1%
driven by lower receivables and inventories
Working capital1 (in EURm & as % of sales)
10.5%

Inventories (in EURm & as % of sales)
10.1%

8.6%

9.0%

597

612

694

659

4Q17

1Q18

2Q18

3Q18

13.3%

-240 bps

9.4%

17

11.2%

15.3%

15.2%

-100 bps
924

957

1.009

994

4Q17

1Q18

2Q18

3Q1812.5%
10.1%

14.1%

12.5%

13.8%

15.3%

16.2%

669

717

789

879

886

982

1.082

1.137

4Q16

1Q17

2Q17

3Q17

4Q16

1Q17

2Q17

3Q17

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

derivative financial assets & liabilities, and accrued liabilities

Net debt increased by EUR 49m, mainly due to share repurchases
In EURm

737

688
95

18

3200

50
141857

FCF: EUR +64m

Net debt
end of 2Q18

18EBITDA

Change inworkingcapital

Net capex

Change in Interest & Tax
Otherprovisions
FCF items*Share repurchases for cancellation purposes**Other includes cash used for acquisition, derivatives, FX effect on cash, cash equivalents and debt

Sharerepurchases*

Other**Net debt
end of 3Q18

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

Outlook and conclusion by Eric Rondolat
Q&A19

Outlook 2018
• Expect our comparable sales growth in the second half of the year to be similar tothe first half%• Taking into account the solid progress in cost savings, we remain confident that we will be able toimprove the Adjusted EBITA margin to the lower end of the 10.0-10.5% range• Continue to expect solid free cash flow in 2018, which will be somewhat lower thanthe level in 2017 due to higher restructuring payments

20

Q&A

21

Currency movements had a negative impact on sales and Adjusted EBITA
3Q18 Sales FX Footprint (% of total)

EUR
32%

Other
currencies
36%

CNY
7%

22

USD
25%

Key observations•Currency movements negatively impacted sales andAdjusted EBITA•

Sales impact from currencies of EUR -35m, or -2.1%,
mainly from emerging market currencies such as ARS,INR, BRL and IDR•Adjusted EBITA impact of EUR -14m, and -60 bps on
the Adjusted EBITA margin, mainly from IDR, BRL, ARSand INR•

Signify policy is to hedge 100% of committed FXtransactions and anticipated transactions up to 80% inlayers over the next 15 months

Net income of EUR 93m due to higher restructuring costs and a net realestate gain of EUR 21m related to Lamps in Q3 2017
Key observations

From Adjusted EBITA to net income (in EURm)

12

23

3Q17

3Q18

Adjusted EBITA

176

191

- Restructuring-9-17- Acquisition related charges

00- Other incidental items

23-7EBITA

191

167

Amortization-30-24

EBIT

161

143

Net financial income / expenses-10-12

Income tax expense
Results relating to investments inassociates
Net income-42-37

0-1

110

93

1

Net real estate gain of EUR 21m related to Lamps in
3Q17

2

Income tax expense decreased by EUR 5m mainly due
to lower taxable earnings in 3Q18

Free Cash Flow of EUR 64m
Key observationsFree 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

24

3Q17
161
67
22-97-107-4-29
3-22-5-0.3%

3Q18
143
57
35-92
-14-5-45-18
364
4.0%

•

Free cash flow of EUR 64m compared with EUR -5m,
mainly driven by an improvement in working capital•Free cash flow in Q3 2017 benefited from the proceeds
related to sale of real estate of EUR 21m•

Cash outflow related to restructuring EUR 39m and
EUR 4m for company name change