Philips Lighting reports sales at 1.7 billion, continued - PowerPoint PPT Presentation

Philips Lighting reports sales at € 1.7 billion, continued profitability increase led by gross margin improvement; solid cash flow Q3 2016 Presentation October 20, 2016

Agenda Business and operational performance by Eric Rondolat Financial performance by Stéphane Rougeot Q&A

Philips Lighting reports sales at € 1.7 billion, continued profitability increase led by gross margin improvement; solid cash flow Third quarter 2016 highlights • Comparable sales decline of 3.3% • Net income of € 51 million, including € 30 million brand license fee, separation costs and financial expenses not applicable in • Total LED-based sales growth of 16%, representing 56% of total 2015 sales • Free cash flow of € 164 million particularly driven by improved • Continued year-on-year improvement in operational profitability profitability and working capital management Comparable Sales Growth (%) Adjusted EBITA ( € m and as % of sales) 10,0% 9,3% -1,3% -1,5% 7,8% 7,5% 7,5% 7,1% 175 -2,7% 159 161 -3,0% -3,3% 139 139 121 -4,2% 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 3

Financial performance by business group Q3 2016 CSG% Adjusted vs LY Adjusted vs LY EBITA ( € m) EBITA % (bps) ( € m) Lamps -13.3% 120 +16 21.1% +560 LED 11.5% 40 +15 10.6% +340 Professional -3.8% 42 -7 6.3% -60 Home 11.0% -1 +16 -0.8% +1,340 Philips Lighting -3.3% 175 +36 10.0% +250 4

Lamps performance supports our strategy to continue to extract value 727 725 20,3% 20,5% 21,1% 671 615 17,7% 15,5% 14,8% 572 570 129 125 120 117 -13,3% 107 104 -14,2% -14,5% -16,3% -16,8% -18,3% 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Sales Comparable sales growth Adjusted EBITA (in € m) (%) (in € m and as % of sales) • Comparable sales decline of 13.3% showing an improvement in comparison to previous quarters • Adjusted EBITA increased to € 120 million, mainly driven by manufacturing footprint rationalization, procurement and productivity savings • Active portfolio management led to successful divestment of the quartz and special glass business in the Netherlands 5

LED volume growth remained strong and margin improved significantly 8,4% 10,6% 8,8% 400 7,2% 377 355 345 346 5,6% 314 40 2,9% 35 24,1% 31,6% 32,5% 28,8% 29 25 20 15,6% 11,5% 9 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Sales Comparable sales growth Adjusted EBITA (in € m) (%) (in € m and as % of sales) • While volume growth remained strong, sales grew less rapidly versus previous quarters due to price erosion and mix impact. Softer growth in second quarter in the Americas was prolonged in third quarter; slower sales growth in some Europe countries • Adjusted EBITA margin at 10.6% driven by material procurement savings, operational leverage and indirect cost reduction, partly offset by price erosion • Philips Lighting reached a technological breakthrough as it developed a high lumen LED alternative for popular high wattage CFLi bulbs, which put out up to 3,000 lumen and fit existing fixture and luminaires 6

Professional affected by market conditions in the Middle East & Turkey and softer outdoor market in some European countries 752 706 689 684 664 6,9% 6,7% 6,6% 6,3% 601 5,7% 3,8% 1,0% 50 -1,9% -0,2% -1,5% -2,1% 49 46 42 39 -3,8% 6 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Sales Comparable sales growth Adjusted EBITA (in € m) (%) (in € m and as % of sales) • Worsened market conditions in the Middle East & Turkey. Excluding the Middle East & Turkey comparable sales growth was positive • Demand was also affected by a softer outdoor market in some European countries, while the Americas posted growth • Adjusted EBITA decreased as procurement savings and production efficiency improvements were offset by lower sales and write downs on bad debt in the Middle East & Turkey • New acoustic sensors integrated into street lights working with Philips CityTouch offer the potential to reduce emergency response time by detecting the sound of a vehicle collision and have information relayed instantly for use by emergency services 7

Home showed growth and adjusted EBITA neared break-even point 167 -1 130 127 -7 124 120 116 -10 -0,8% 13,8% 10,7% 14,3% 11,0% -12 -17 -4,2% -19 -9,7% -7,9% -7,0% -6,7% -14,2% -16,4% 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Sales Comparable sales growth Adjusted EBITA (in € m) (%) (in € m and as % of sales) • Double-digit comparable sales growth supported by both the Home Luminaires and Home Systems businesses, all markets contributed to growth • Adjusted EBITA neared the break-even point – attributable to operational efficiency gains, procurement savings and operational leverage • The Philips Hue Motion Sensor was introduced, enabling motion control of the connected lighting system, while expansion of Philips Hue partnerships continued 8

Agenda Business and operational performance by Eric Rondolat Financial performance by Stéphane Rougeot Q&A

Quarter-on-quarter comparable sales decline mainly due to softness in Professional Comparable sales growth (%) Key observations Variance CSG% -1.5% -3.3% • Professional: worsened market conditions in the Middle -180 bps East & Turkey; softer outdoor market in some European countries • LED: market slowdown in some European countries, North America Q2 slowdown prolonged into Q3, continued solid growth in the rest of the world • Lamps: slower pace of decline across most geographies • Home: continued double digit growth -10 160 -280 -50 Q2 2016 Prof LED Lamps Home Q3 2016 10

Increase of adjusted EBITA mainly from gross margin improvements Adjusted EBITA ( € m) As % of sales 7.5% +2.5% -0.6% +0.6% -0.6% 0.6% 10.0% (10) 10 (9) 175 140 9 (123) 19 139 Q3 2015 Vol / mix Price CoGS Brand Indirect Other Currency Q3 2016 1 2 license fee costs income 1 Brand license fee is included in indirect costs in the financial statements 11 2 Other business income last year was positively impacted by gains in sale of real estate

Since 2013 a trajectory of continued improvement in operational profitability Adjusted EBITA Full year ( € m and as % of sales) Adjusted EBITA YTD ( € m and as % of sales) +90 bps +160 bps 8,8% 7,3% 7,2% 6,8% 6,4% 547 476 453 457 388 FY2013 FY2014 FY2015 9m2015 9m2016 12

Working capital well managed driven by reduced inventory levels Working capital 1 (in € m & as % of sales) Inventories (in € m & as % of sales) 14,1% 13,8% 13,6% 13,2% 12,2% 11,6% 11,2% 11,1% 988 1.010 1.030 999 832 865 895 809 -190 bps Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2015 Q1 2016 Q2 2016 Q3 2016 -290 bps 16,6% 16,0% 15,7% 15,0% 14,3% 14,1% 14,1% 13,4% 996 1.139 1.214 1.162 981 954 1.095 1.047 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2014 Q1 2015 Q2 2015 Q3 2015 1 Working capital includes Inventories, Receivables, Account and notes payable, Other current assets & liabilities, 13 Derivative financial assets & liabilities, Income tax receivable & payable, and accrued liabilities.

Solid improvement of free cash flow in third quarter Free cash flow (in € m) Key observations • Third quarter improved compared to Q3 2015 by: 164 • improved profitability • strong working capital inflow • partly offset by increased interest payments (new financing structure) and higher taxes 60 • Net debt at end of Q3: € 614 million -78 1Q16 2Q16 3Q16 14

Philips Lighting has sales in a wide range of currencies Q3 2016 Sales FX Footprint (% of total) Key observations • Currency movements had a negative impact on sales and a Other positive impact on adjusted EBITA in the third quarter USD currencies 28% 37% • Sales impact from currencies of -2.1%, mainly from Argentine Peso, British Pound and Chinese Renminbi • Adjusted EBITA impact of € 9 million or 0.6% • Philips Lighting policy is to hedge 100% of committed FX transactions and anticipated transactions up to 80% in layers over the next 15 months CNY 7% EUR 27% 15

Q&A