Slide 1: Q4 & Full Year 2016 presentation
Philips Lighting reports full year operating profit margin increase of 180 basis points to 9.1% and free cash flow of EUR 418m Q4 & Full Year 2016 presentation January 23, 2017
Slide 2: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2016 by Stéphane Rougeot Highlights for the year 2016 by Eric Rondolat Outlook & Conclusion by Eric Rondolat Q&A
Slide 3: Welcome & Introduction
Welcome & Introduction • Businesses performed in accordance with strategic objectives, despite challenging conditions in some markets • Significant increase in profitability • Solid free cash flow • Continued progression to achieve strategic goals and medium term financial objectives • Committed to
Slide 4: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2016 by Stéphane Rougeot Highlights for the year 2016 by Eric Rondolat Outlook & Conclusion by Eric Rondolat Q&A
Slide 5: Financial performance by business group
Financial performance by business group Q4 2016 CSG% Adjusted vs LY Adjusted vs LY EBITA (€m) EBITA % (bps) (€m) Lamps -18.5% 110 +3 19.1% +430 LED 11.3% 53 +18 12.0% +320 Professional 0.1% 51 +1 6.9% +30 Home 8.8% 3 +10 1.7% +590 Philips Lighting -3.2% 188 +29 9.7% +190 5
Slide 6: Increased Adjusted EBITA margin driven by gross margin improvement and indirect cost savings
Increased Adjusted EBITA margin driven by gross margin improvement and indirect cost savings Adjusted EBITA (EURm) as % of sales 7.8% +190 bps 9.7% Gross margin + 170bps 13 188 43 159 (10) (149) 142 (10) Q4 2015 Vol / mix Price CoGS Brand Indirect Currency Q4 2016 1 license fee costs 1 Brand license
Slide 7: Lamps improved margin by 430 bps due to ongoing cost rationalizations
Lamps improved margin by 430 bps due to ongoing cost rationalizations, despite decline in sales Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2016 -14.5% -13.3% -16.8% • Given Q4 sales, sales decline in 2H16 at 15.6% similar as -18.3% -18.5% sales decline in 1H16 • Adjuste
Slide 8: LED volume growth remained robust and margin improved by 320 bps
LED volume growth remained robust and margin improved by 320 bps Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2016 32.5% 28.8% • Continued double digit growth: still robust volume growth, 15.6% price erosion and mix impact 11.5% 11.3% • Soft comparable sales trend in the
Slide 9: Professional showed stable sales and 30 bps margin improvement
Professional showed stable sales and 30 bps margin improvement Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2016 • Stable comparable sales level, excl. Saudi Arabia: +3.6% • Europe showed growth, the Americas was stable • Adjusted EBITA margin improvement of 30 bps: • Pro
Slide 10: Home was profitable in Q4
Home was profitable in Q4 Sales (in EURm) & comparable sales growth (in %) Key observations for Q4 2016 13.8% 14.3% • Comparable sales growth: 10.7% 11.0% 8.8% • Driven by Home Systems • Contributed by all markets • Adjusted EBITA margin improvement of 590 bps: 167 124 127 130 178 • Operational effi
Slide 11: Working capital as % of sales improved by 180 bps
Working capital as % of sales improved by 180 bps Structural improvement supported by focus on inventories Working capital1 (in EURm & as % of sales) Inventories (in EURm & as % of sales) 11.6% 12.2% 13.6% 14.1% 13.8% 12.5% 11.2% 9.3% 865 895 809 662 1,010 1,030 999 886 -70 bps 1Q16 2Q16 3Q16 4Q16 -
Slide 12: Solid free cash flow in Q4 driven by improved profitability and robust working capital
Solid free cash flow in Q4 driven by improved profitability and robust working capital performance Free cash flow (in EURm) Net debt development since IPO (in EURm) Free cash flow FY 2016: EUR 418m 950 795 614 341 272 164 60 -78 1Q16 2Q16 3Q16 4Q16 IPO 2Q16 3Q16 4Q16 12
Slide 13: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2016 by Stéphane Rougeot Highlights for the year 2016 by Eric Rondolat Outlook & Conclusion by Eric Rondolat Q&A
Slide 14: Substantial progress and solid performance achieved in 2016
Substantial progress and solid performance achieved in 2016 Comparable Sales Growth Adjusted EBITA Free Cash Flow (in %) (in EURm and % of sales) (In EURm) 9.1% -0.8% 6.8% 7.3% -2.4% -3.5% 476 547 645 355 632 418 2014 2015 2016 2014 2015 2016 2014 2015 2016 Improved comparable sales 9.1% (+180bps) i
Slide 15: Sound progress made on our strategic priorities during 2016
Sound progress made on our strategic priorities during 2016 Strategic priorities Proof points in 2016 Optimize cash from conventional products to fund our • Free cash flow as % of sales for Lamps improved by 12% growth Innovate in LED products commercially and • LED lighting share increased from 43%
Slide 16: Total LED sales grew from EUR 2.2bn in 2013 to EUR 3.9bn in 2016
Total LED sales grew from EUR 2.2bn in 2013 to EUR 3.9bn in 2016 Development of total LED sales (in % of total sales) Total LED sales 2016: EUR 3.9bn, CSG +20% LED Home 12% 55% (CSG 31%) 43% 34% BG LED 26% 39% (CSG 16%) LED Professional 49% (CSG 21%) 2013 2014 2015 2016 16
Slide 17: Indirect cost base reduced by EUR 96m in 2016
Indirect cost base reduced by EUR 96m in 2016 2,317 36 Key observations 2,257 • Brand license fee of EUR 36m following the -96 separation from Royal Philips 1,952 1,917 • Indirect cost savings primarily came from a reduction in SG&A Adj. SG&A • Further cost reduction opportunities: • Selling expense
Slide 18: Lamps improved margin by 400 bps, reflecting our last man standing strategy
Lamps improved margin by 400 bps, reflecting the execution and benefit of our last man standing strategy Sales (EURm) & Comparable Sales Growth (in %) Progress in 2016 CSG -15.8% • Sales decline due to the transition from conventional to LED lighting • Adjusted EBITA margin improvement by 400 bps dr
Slide 19: LED margin increased by 390 bps, on track to achieve margin of 10-12%
LED margin increased by 390 bps, on track to achieve margin of 10-12% in the medium term Sales (EURm) & Comparable Sales Growth (in %) Progress in 2016 • CSG of 16.1%: robust volume growth, continued price erosion, mix impact CSG 16.1% • Americas: softened comparable sales trend • Europe: slower sal
Slide 20: Professional performance impacted by Saudi Arabia, initiatives to improve margin
Professional performance impacted by Saudi Arabia, initiatives in place to improve margin to 11-14% in the medium term CSG -0.5% CSG 3.6% Progress in 2016 2.790 2,757 • CSG driven by growth in the Americas, offset by softness in 2.683 107 108 some European countries; negative contribution from Saudi
Slide 21: Home has become a profitable business in the second half of 2016
Home has become a profitable business in the second half of 2016, on track to become profitable on a full-year basis in 2017 Sales (EURm) & Comparable Sales Growth (in %) Progress in 2016 • Sales growth driven by growth in both Home Systems and Home CSG 11.0% Luminaires due to continued focus on inn
Slide 22: Sustainability: Brighter Lives, Better World 2016 results
Sustainability: Brighter Lives, Better World 2016 results 2016 result Year-on-year result 2020 target Sustainable 77.8% +6.2% 80% revenues Sell 2 billion 628 million +44% >2 billion LED lamps (cumulative from 2015) Carbon footprint Net 406 kt CO2 -39% Net 0 kt CO2 Zero Waste to 26% of sites New KPI
Slide 23: Agenda
Agenda Welcome & introduction by Eric Rondolat Highlights for Q4 2016 by Stéphane Rougeot Highlights for the year 2016 by Eric Rondolat Outlook & Conclusion by Eric Rondolat Q&A
Slide 24: Outlook 2017
Outlook 2017 • Further improvement of Adjusted EBITA margin: approximately 50-100 basis points % • In line with medium term outlook to gradually improve the Adjusted EBITA margin to 11-13% • Committed to continue delivering solid free cash flow • Remain committed to our ambition to return to positiv
Slide 25: 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* • Managing our financial ratios to maintain a financing structure compatible with an investment-grade • Disciplined management of balance sh
Slide 26: Attractive shareholder return
Attractive shareholder return 2016 dividend EUR 1.10; return additional capital up to EUR 300m over the period 2017-2018 Dividend 2016 (in EUR m) Key observations FY 2016 • Proposed dividend of 52% pay-out Net income attributable to shareholders 189 • Additional capital return up to EUR 300m Restruc
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Slide 28: Philips Lighting has sales in a wide range of currencies
Philips Lighting has sales in a wide range of currencies Q4 2016 Sales FX Footprint (% of total) Key observations • Currency movements had a negative impact on sales and Other Currencies a positive impact on Adjusted EBITA in the fourth quarter EUR • Sales impact from currencies of -1.4%, mainly fro
Slide 29: Full year net income of EUR 185m includes EUR 143m charges not applicable in 2015
Full year net income of EUR 185m includes EUR 143m charges not applicable in 2015 From Adjusted EBITA to net income (in EURm) Charges not applicable in 2015: 4Q16 FY 2016 Brand license fee of EUR 36m for the year 1 Adjusted EBITA 188 645 1 Q4 2016: EUR 10m - Restructuring -25 -115 - Acquisition rela
Slide 30: Solid free cash flow driven by improved profitability and strict working capital management
Solid free cash flow driven by improved profitability and strict working capital management Free cash flow (in EURm) Key observations Q4 2016 FY 2016 • Free cash flow includes higher cash outflows following the separation, in particular interest payments and taxes Income from operations 109 369 • Fr
Slide 31: 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