Philips Lighting Reports 2Q Sales Down Nearly 2%

Eindhoven, the Netherlands – Philips Lighting (Euronext Amsterdam: LIGHT) today announced the company’s 2017 second quarter results. “I am pleased that our LED, Professional and Home businesses posted solid operating margin increases, while Lamps maintained its high level of profitability,” said CEO Eric Rondolat. “In the first half of the year, our growth profile improved and our profitability continued to increase. This demonstrates the successful implementation of our strategy and reinforces our confidence that we are on track to achieve our outlook for 2017.”

Second quarter 2017 highlights

• Sales of EUR 1,699 million, with a decline in comparable sales of 1.8%
• Total LED-based sales growth of 14%, now representing 63% of total sales (Q2 2016: 53%)
• Adjusted EBITA of EUR 174 million (Q2 2016: EUR 161 million)
• Adjusted EBITA margin of 10.2% (Q2 2016: 9.3%)
• Net income of EUR 73 million (Q2 2016: EUR 57 million)
• Free cash flow of EUR -27 million (Q2 2016: EUR 60 million)

Half year 2017 highlights

• Sales amounted to EUR 3,389 million, with a decline in comparable sales of 1.3%
• Total LED-based sales growth of 17%, now representing 62% of total sales (H1 2016: 52%)
• Adjusted EBITA of EUR 317 million (H1 2016: EUR 282 million)
• Adjusted EBITA margin of 9.4% (H1 2016: 8.2%)
• Net income of EUR 134 million (H1 2016: EUR 71 million)
• Free cash flow of EUR -26 million (H1 2016: EUR -18 million)

Outlook
We are on track to further improve our Adjusted EBITA margin by 50-100 basis points for the full year, excluding aEUR15millionrealestategaininthesecondquarter, and to deliver solid free cash flow. While we are cautious given global economic uncertainty, we are confident that we will return to positive comparable sales growth in the course of this year.

Second quarter
Sales amounted to EUR 1,699 million. On a comparable basis, the decline in sales was 1.8%, due to the ongoing decline in the conventional lighting market, which was partly offset by significant growth in LED and connected lighting systems. Europe delivered robust growth, while the Americas continued to experience softer market conditions. Markets in the Middle East & Turkey, most notably Saudi Arabia, continued to be challenging. Business groups LED and Home achieved double-digit growth, driving total LED-based sales growth of 14%. Total LED-based sales now represent 63% of total sales compared to 53% in the same quarter last year. As a percentage of sales, adjusted gross margin improved by 30 basis points to 39.9%, largely driven by procurement savings and increased productivity, partly offset by price erosion. Adjusted indirect costs as a percentage of sales increased by 30 basis points to 32.3%. Adjusted EBITA increased to EUR174 million, resulting in a 90 basis points improvement of the Adjusted EBITA margin to 10.2%. Excluding a real estate gain of EUR 15 million in Home, the Adjusted EBITA margin increased by 10 basis points to 9.4%. Restructuring and incidental items amounted to EUR 35 million. Restructuring costs were EUR 30 million, while incidental items included EUR 5 million separation costs. Net income increased from EUR 57 million to EUR 73 million.

First half year
Solid progress was made overall and in each business group. Comparable sales declined by 1.3%, which is an improvement compared to the comparable sales performance of -2.4% of full year 2016. Total LED-based sales saw robust growth of 17%, which was offset by a decline in conventional lighting. As a percentage of sales, adjusted gross margin improved by 110 basis points to 39.7%, driven by procurement and productivity savings, partly offset by price erosion. Adjusted indirect costs as a percentage of sales increased by 50 basis points to 33.0%. Adjusted EBITA increased to EUR 317 million, or 9.4% of sales. Excluding a real estate gain of EUR 15 million in Home in the second quarter, the Adjusted EBITA margin was 8.9%. Restructuring and other incidentals amounted to EUR 55 million. Restructuring costs were EUR 41 million, while separation costs amounted to EUR 14 million.

Business highlights for the second quarter

• LED: We introduced the Philips TrueForce LED range, supporting our continuous innovation in LED products to outgrow the market. TrueForce LED offers simple lamp-for-lamp replacement of select high intensity discharge lamps and reduces energy and maintenance costs in the outdoor and industrial sectors.
• LED: In the US, we introduced Philips InstantFit LED T8 lamps with EasySmart technology, also supporting our continuous innovation in LED products to outgrow the market. The InstantFit platform ensures easy integration with control devices and systems and makes the new TLED lamps the first and only wireless, network-capable linear lamp retrofit.
• Professional: In the US, we introduced InterAct Office, cloud-based software that enables wireless control of connected lighting systems, resulting in faster and easier office lighting renovations. InterAct Office also controls our Power-over-Ethernet (PoE) lighting systems, which have been deployed worldwide, and signals our continued leadership in lighting systems for the office segment. InterAct Office can deliver data-driven insights, enable instant energy savings of up to 70% and optimize operations via new applications including lighting energy, scene, and space management.
• Professional: Continuing our leadership in systems for the sports segment, we extended Philips ArenaVision dynamic LED pitch lighting to the stadiums of Olympique Lyonnais, Sevilla FC and the Sinan Erdem Arena in Istanbul. ArenaVisionenhancesthefanexperience,boosts the multi-purpose appeal of stadiums for hosting other live events and meets the latest standards of international sports federations and broadcasters. We also introduced Philips PerfectPlay, a new web-controlled LED lighting system for recreational sports facilities. PerfectPlay reduces energy costs, simplifies operations and maximizes revenue potential, while providing better quality lighting for athletes.
• Professional: In Russia, we announced the world’s largest LED horticultural lighting project with Agro- Invest, demonstrating our ability to continue leading the shift to systems in the agricultural sector. The project, which is approximately 40 soccer pitches in size, will enable year-round growing and is expected help boost yields and to save 50% on energy costs compared to conventional high-pressure sodium lighting.
• Home: Philips Lighting continues to optimize the speed of cloud-based communication between Philips Hue and voice-activated platforms, to strengthen its position as the world’s leading connected home lighting system. The introduction of voice-activated platforms such as Amazon Echo, Apple HomePod and Google Home, is helping to drive sales of Hue.