Slide 1: Philips Lighting reports second quarter sales of EUR 1.7 billion and operational profitability of 10.2%
Philips Lighting reports second quarter sales of EUR 1.7 billion and operational profitability of 10.2% Q2 2017 results Analyst & Investor presentation July 21, 2017
Slide 2: Agenda
Agenda Business and operational performance by Eric Rondolat Financial performance by Stéphane Rougeot Outlook and conclusion by Eric Rondolat Q&A
Slide 3: Philips Lighting reports second quarter sales of EUR 1.7 billion and operational profitability of 10.2%
Philips Lighting reports second quarter sales of EUR 1.7 billion and operational profitability of 10.2% Sales (in EURm) & comparable sales growth (in %) Key observations for Q2 2017 -0.8% • Comparable sales declined by 1.8% -1.5% -1.8% • Total LED-based sales increased by 14% • Europe delivered robu
Slide 4: Each business group increased its Adjusted EBITA margin
Each business group increased its Adjusted EBITA margin Adjusted Adjusted Q2 2017 CSG % vs LY (€m) vs LY (bps) EBITA (€m) EBITA % Lamps -18.2% 95 -22 20.7% +20 LED 20.9% 45 16 10.6% +220 Professional -2.7% 48 2 7.2% +50 Home 15.5% 12 22 8.2% +1,610 Philips Lighting -1.8% 174 13 10.2% +90 4
Slide 5: Increasing profitability at LED, Professional and Home more than offsets decreasing profit contribution of Lamps
Increasing profitability at LED, Professional and Home more than offsets decreasing profit contribution of Lamps 110 bps 10.2% 80 bps -20 bps 80 bps 9.3% 9.4% 30 bps 20 bps -70 bps 50 bps Adjusted EBITA Lamps LED Professional Home Other Adjusted EBITA Q2 16 margin Q2 17 margin 5 Contribution of the
Slide 6: Lamps improved profitability, driven by manufacturing footprint optimization
Lamps improved profitability, driven by manufacturing footprint optimization Sales (in EURm) & comparable sales growth (in %) Key observations for Q2 2017 -13.3% -16.8% -18.5% -17.9% -18.2% • Comparable sales declined by 18.2% • In H1 2017, we estimate that the conventional lighting market declined
Slide 7: LED volumes grew significantly and margin continued to improve
LED volumes grew significantly and margin continued to improve Sales (in EURm) & comparable sales growth (in %) Key observations for Q2 2017 • CSG of 20.9% driven by significant volume growth, partly 20.9% offset by lower selling prices and stronger growth in 15.6% 16.7% 11.5% 11.3% affordable produ
Slide 8: Professional improved profitability despite soft market conditions in some key markets
Professional improved profitability despite soft market conditions in some key markets Sales (in EURm) & comparable sales growth (in %) Key observations for Q2 2017 8.4% 3.6% 3.8% • Europe and Greater China remained strong 0.3% -1.0% • Market conditions in the US continued to be soft, 3.8% 0.1% 2.5%
Slide 9: Home delivered double-digit growth and is on track to become profitable for FY 2017
Home delivered double-digit growth and is on track to become profitable for FY 2017 Sales (in EURm) & comparable sales growth (in %) Key observations for Q2 2017 20.6% • Comparable sales growth of 15.5%: 14.3% 15.5% • Driven by both Home Systems and Home Luminaires 11.0% 8.8% • All regions contribut
Slide 10: H1 2017 performance: on track to deliver on outlook for the year
H1 2017 performance: on track to deliver on outlook for the year Comparable sales Adjusted EBITA Free cash flow growth (in %) (in EUR m and as % of sales) (in EUR m) 9.4% 8.2% 7.0% -1.3% -2.4% -3.5% -18 -26 249 282 317 FY 2015 FY 2016 H1 2017 H1 2015 H1 2016 H1 2017 H1 2016 H1 2017 Adjusted EBITA ma
Slide 11: LED-based sales grew by 17% to EUR 2.1bn in H1 2017
LED-based sales grew by 17% to EUR 2.1bn in H1 2017 Development of LED-based sales (in % of total sales) LED-based sales H1 2017: EUR 2.1bn, CSG 17% LED Home 12% 62% (CSG 32%) BG LED 55% 40% (CSG 19%) 43% 34% 26% LED Professional 48% (CSG 12%) 2013 2014 2015 2016 1H 17 11
Slide 12: Agenda
Agenda Business and operational performance by Eric Rondolat Financial performance by Stéphane Rougeot Outlook and conclusion by Eric Rondolat Q&A
Slide 13: Adjusted EBITA margin improvement in Q2 2017 primarily driven by procurement and productivity savings
Adjusted EBITA margin improvement in Q2 2017 primarily driven by procurement and productivity savings Adjusted EBITA (in EURm) as % of sales 9.3% +90 bps 10.2% Gross margin + 30 bps 16 174 161 (35) 12 9 111 (100) 2Q16 Volume / Mix Price CoGS Indirect Costs Currency Other business 2Q17 income* *) Oth
Slide 14: Developments in adjusted indirect costs in Q2 2017
Developments in adjusted indirect costs in Q2 2017 32.0% +30 bps 32.3% Key observations for Q2 2017 as % of sales • Negative currency impact of EUR 3m In EURm • Indirect cost reduction of EUR 9m, including 555 additional investments to support growth 549 Adj. R&D 3 82 -9 • Executing a detailed plan
Slide 15: Working capital as % of sales improved by 130 basis points y-o-y to 10.9%
Working capital as % of sales improved by 130 basis points y-o-y to 10.9% despite an increase in inventories to support sales growth in H2 2017 Working capital1 (in EURm & as % of sales) Inventories (in EURm & as % of sales) 11.2% 10.9% 15.3% 9.3% 9.8% 13.8% 13.8% 12.5% 809 662 695 769 999 886 982 1
Slide 16: Net debt increase of EUR 281m due to dividend payment and share buy-back
Net debt increase of EUR 281m due to dividend payment and share buy-back In EURm 697 121 24 157 416 15 10 11 31 176 136 FCF: EUR -27m Net debt EBITDA Change in Net capex Change in Interest Other FCF Dividend Share Other Net debt end 1Q17 working provisions & Tax items* buy-back end 2Q17 capital 16 *
Slide 17: Capital allocation policy
Capital allocation policy Cash available Cash uses • Continued free cash flow generation • Annual regular cash dividend within 40-50% of continuing net income*; dividend paid of EUR 157m • Managing our financial ratios to maintain a financing structure compatible with an investment-grade • Disciplin
Slide 18: Agenda
Agenda Business and operational performance by Eric Rondolat Financial performance by Stéphane Rougeot Outlook and conclusion by Eric Rondolat Q&A
Slide 19: On track to deliver our 2017 outlook
On track to deliver our 2017 outlook % • Further improvement of Adjusted EBITA margin: approximately 50-100 basis points in 2017, excluding a real estate gain of EUR 15m in Q2 2017 • Deliver solid free cash flow • Confident that we will return to positive comparable sales growth in the course of thi
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Slide 21: Currency movements had a positive impact on both sales and Adjusted EBITA
Currency movements had a positive impact on both sales and Adjusted EBITA Q2 2017 Sales FX Footprint (% of total) Key observations • Currency movements had a positive impact on both sales and Adjusted EBITA in the second quarter EUR Other 28% • Sales impact from currencies of EUR 21m, mainly from Cu
Slide 22: Net income of EUR 73m driven by higher operating profit and lower financial expenses
Net income of EUR 73m driven by higher operating profit and lower financial expenses From Adjusted EBITA to net income (in EURm) Key observations 2Q16 2Q17 Adjusted EBITA 161 174 - Restructuring -23 -30 1 Separation costs of EUR 5m in Q2 2017 - Acquisition related charges 0 0 1 - Other incidental it
Slide 23: Free Cash Flow of EUR -27m
Free Cash Flow of EUR -27m Free cash flow (in EURm) Key observations 2Q16 2Q17 • Free cash flow decline of EUR 87m: Income from operations 96 111 • Higher cash outflow on working capital Depreciation and amortization 68 65 • Higher tax income paid Change in working capital -36 -136 • Cash outflow re
Slide 24: Real estate gains in the first half of 2017
Real estate gains in the first half of 2017 In EUR m Q1 2017 Q2 2017 H1 2017 Lamps 10 0 10 LED 3 0 3 Professional 3 0 3 Home 0 15 15 Philips Lighting 16 15 31
Slide 25: Important information
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 projectio