Slide 1: Q4 & Full Year 2017 presentation
Philips Lighting reports 0.5% full year comparable sales growth, 10% operational profitability and EUR 403 million free cash flow Q4 & Full Year 2017 presentation February 2, 2018
Slide 2: 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
Slide 3: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2017 by Stéphane Rougeot Highlights for the year 2017 by Eric Rondolat Outlook & conclusion by Eric Rondolat Q&A
Slide 4: Welcome & introduction
Welcome & introduction • Returned to positive comparable sales growth in 2017, driven by the growth of LED and connected lighting Systems & Services, which demonstrates the successful execution of our strategy • Operational profitability improved by 90 basis points to 10% • Delivered free cash flow
Slide 5: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2017 by Stéphane Rougeot Highlights for the year 2017 by Eric Rondolat Outlook & conclusion by Eric Rondolat Q&A
Slide 6: Growth and margin improvement mainly driven by Professional & Home
Growth and margin improvement mainly driven by Professional & Home Adjusted Adjusted 4Q17 CSG % vs LY (EURm) vs LY (bps) EBITA (EURm) EBITA % Lamps -18.4% 76 -34 17.3%* -180 LED 5.1% 46 -7 10.4% -160 Professional 11.2% 95 +44 12.2% +530 Home 37.3% 20 +17 8.5% +680 Philips Lighting 3.0% 207 +19 10.9%
Slide 7: Increased profitability driven by Professional and Home
Increased profitability driven by Professional and Home 10.9% 10 bps 9.7% 60 bps -120 bps -40 bps 200 bps Adjusted EBITA Lamps LED Professional Home Other Adjusted EBITA margin 4Q16 margin 4Q17 7
Slide 8: Adjusted EBITA margin improvement primarily driven by procurement & productivity savings
Adjusted EBITA margin improvement primarily driven by procurement & productivity savings and indirect cost reductions Adjusted EBITA (EURm) as % of sales 9.7% +120 bps 10.9% Gross margin + 10 bps 19 -91 20 10 -10 207 188 72 Q4 2016 Volume / Mix Price CoGS Indirect Costs Currency OBI* Q4 2017 * Other
Slide 9: Lamps margin impacted by continued significant top-line decline
Lamps margin impacted by continued significant top-line decline Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2017 • Comparable sales declined by 18.4% -18.5% -17.9% -18.2% -20.2% -18.4% • We estimate that the conventional lighting market declined at a faster pace than our
Slide 10: LED showed robust growth in LED lamps, while LED electronics slowed
LED showed robust growth in LED lamps, while growth in LED electronics continued to slow down Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2017 • CSG of 5.1% driven by continued double-digit volume 20.9% growth, partly offset by lower selling prices and stronger 16.7% 14.
Slide 11: Professional significantly improved CSG and profitability
Professional significantly improved CSG and profitability Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2017 10.1% 14.4% • CSG of 11.2%; all regions contributed to growth 3.6% 3.8% -1.0% 11.2% • Performance in Europe and Rest of the World continued 2.5% 7.0% to be solid 0.
Slide 12: Home showed solid growth and profitability improvement
Home showed solid growth and profitability improvement Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2017 37.3% • Strong CSG at 37.3%: 28.1% • Significant growth in Home Systems 20.6% 15.5% • Solid growth in Home Luminaires 8.8% 178 148 146 158 232 4Q16 1Q17 2Q17 3Q17 4Q17
Slide 13: Developments in adjusted indirect costs in Q4 2017
Developments in adjusted indirect costs in Q4 2017 30.7% -160 bps 29.1% Key observations as % of sales • Indirect cost reduction of EUR 20m, including 593 incremental investments to support growth In EURm -20 -22 551 • Positive currency impact of EUR 22m 86 Adj. R&D 80 • Executing multi-year transfo
Slide 14: Benefits of the transformation initiatives increasingly visible from H2 2018
Benefits of the transformation initiatives increasingly visible from H2 2018 Adjusted indirect costs (as % of sales) Transformation initiatives Actions underway to drive benefits across multiple levers: 31.5% 31.7% • Consolidate and rationalize businesses, 29.0% Organization Peer flatten organizatio
Slide 15: Working capital as % of sales decreased by 130 basis points
Working capital as % of sales decreased by 130 basis points y-o-y to 8.0% despite higher inventories Working capital1 (in EURm & as % of sales) Inventories (in EURm & as % of sales) 15.3% 16.2% 11.9% 13.8% 13.3% 10.9% 9.8% 8.0% 695 769 837 557 982 1,082 1,137 924 +80 bps 1Q17 2Q17 3Q17 4Q17 1Q17 2Q1
Slide 16: Solid Free Cash Flow decreases net debt by EUR 342m
Solid Free Cash Flow decreases net debt by EUR 342m In EURm 709 FCF: EUR 434m Net leverage stable at 0.5x versus last year 163 259 367 1 90 35 22 21 23 Net debt EBITDA Change in Net capex Change in Interest & tax Other FCF Share Other Net debt end 3Q17 working provisions items* repurchase end of 4Q1
Slide 17: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2017 by Stéphane Rougeot Highlights for the year 2017 by Eric Rondolat Outlook & conclusion by Eric Rondolat Q&A
Slide 18: Substantial progress and solid performance achieved in 2017
Substantial progress and solid performance achieved in 2017 Comparable Sales Growth Adjusted EBITA Free Cash Flow (in %) (in EURm and % of sales) (In EURm) +0.5% 9.1% 10.0% -0.8% 6.8% 7.3% -2.4% -3.5% 476 547 645 699 355 632 418 403 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 10.0% (
Slide 19: Solid performance improvements across all business groups in 2017
Solid performance improvements across all business groups in 2017 Lamps CSG (%) and Adj. EBITA margin (%) LED CSG (%) and Adj. EBITA margin (%) -15.8% • Margin benefited from 16.1% • Higher volumes due to -18.6% pro-active rationalization 13.8% lower selling prices & of manufacturing stronger growth
Slide 20: Adjusted EBITA continued to increase, while profit drivers are shifting
Adjusted EBITA continued to increase, while profit drivers are shifting Adjusted EBITA (EURm) 699 645 36 207 145 225 20 142 174 95 64%* 46 472 46%* 370 32%* 76 -94 -106 -30 -20 4Q17 2016 2017 Home Professional LED Lamps Other Lamps represented 32%* of Adjusted EBITA (excl. Other) in 4Q17 compared to
Slide 21: Sound progress made on our strategic priorities during 2017
Sound progress made on our strategic priorities during 2017 Strategic priorities Proof points in 2017 Optimize cash from conventional products to fund our • Free cash flow as % of sales for Lamps improved by 400 bps growth Innovate in LED products commercially and • LED lighting share increased from
Slide 22: Sustainability: Brighter Lives, Better World 2017 results
Sustainability: Brighter Lives, Better World 2017 results 2017 result Year-on-year result 2020 target Due to stricter Sustainable revenues 77.3% -0.6% 2017 definition 80% LED lamps & 1,196 million +53% >2 billion luminaires delivered (cumulative from 2015) Carbon footprint Net 325 kt CO2 -20% Net 0
Slide 23: Capital allocation policy
Capital allocation policy Cash available 2017 • Continued free cash flow generation EUR 403m free cash flow • Managing our financial ratios to maintain a financing structure Net leverage stable at 0.5x compatible with an investment-grade profile Cash uses • Dividend pay-out within 40-50% of continui
Slide 24: Attractive shareholder return
Attractive shareholder return 2017 dividend EUR 1.25 to be paid in 2018; return additional capital up to EUR 150m in 2018 Dividend 2017 (in EURm) Key observations FY 2017 • Proposed dividend increase of 14% at EUR 1.25 per Net income attributable to shareholders 294 share; pay-out ratio of 45% Restr
Slide 25: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2017 by Stéphane Rougeot Highlights for the year 2017 by Eric Rondolat Outlook & conclusion by Eric Rondolat Q&A
Slide 26: Outlook 2018
Outlook 2018 • Aim to deliver positive comparable sales growth for the full year, with a soft start in the first quarter • Further improvement of Adjusted EBITA margin to 10.0-10.5% % • Continue to focus on cost reduction initiatives; expect to benefit from higher savings as of the second half of 20
Slide 27: Path to value – Targeting Adj. EBITA margin of 11-13% by 2019
Philips Lighting Path to value – Targeting Adj. EBITA margin of 11-13% by 2019 11-13% +100-300 bps +360bps 10.0% 6.4% 2013 2017 2019 Professional LED Home Lamps 11-14% 20.3% > 16% 10-12% 10.2% 16.4% 8.2% 2.2% 5-8% 3.1%* 2013 2017 2019 -2.1% -11.6% 2013 2017 2019 2013 2017 2019 2013 2017 2019 Expecte
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Slide 29: Total LED-based sales grew from EUR 2.2bn in 2013 to EUR 4.5bn in 2017
Total LED-based sales grew from EUR 2.2bn in 2013 to EUR 4.5bn in 2017 Development of total LED-based sales (in % of total sales) Total LED-based sales 2017: EUR 4.5bn, CSG 19% 65% LED Home 13% 55% (CSG 38%) 43% BG LED 34% 37% (CSG 14%) 26% LED Professional 49% (CSG 18%) 2013 2014 2015 2016 2017 29
Slide 30: Currency movements had a negative impact on sales and positive impact on Adjusted EBITA
Currency movements had a negative impact on sales and positive impact on Adjusted EBITA Q4 2017 Sales FX Footprint (% of total) Key observations • Currency movements had a negative impact on sales and a positive impact on Adjusted EBITA in Q4 2017 EUR • Sales impact from currencies of EUR -87m, main
Slide 31: Net income of EUR 38m due to higher restructuring costs and an impairment
Net income of EUR 38m due to higher restructuring costs and an impairment of other intangible assets From Adjusted EBITA to net income (in EURm) Key observations 4Q16 4Q17 Adjusted EBITA 188 207 1 - Restructuring -25 -75 1 Higher restructuring costs related to Lamps - Acquisition related charges -2
Slide 32: Free Cash Flow of EUR 434m
Free Cash Flow of EUR 434m Free cash flow (in EURm) Key observations 4Q16 4Q17 • Free cash flow increased to EUR 434m: Income from operations 109 75 • Robust working capital performance, in particular the Depreciation and amortization 73 88 reduction of inventories and receivables • Change in provis