Financial Value Creation Stewart McCrone CFO Philips Lighting 7 3
Key takeaways We are a stronger company due to measures taken in the last two years; 21 expected be a record year for Lighting The Lighting market is set to grow, driven by LED. We will are ready to grow sales, expand margins, create value 74
Acted fast in the downturn. Benefiting from sales rebound /lower cost base. Heading for record year Sales-driven leverage and lower break-even point driving EBITA improvement Improving profitability, sustainably lower cost Mln 3 3% Sales up 15% first half year 21 2 1-1 -2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2% 1% % -1% -2% Last twelve months adjusted EBITA running at over 11 % of sales Full year 21: fixed cost savings will lower breakeven point by around 2.5% of EBITA margin 28 29 21 Restructuring and M&A related charges EBITA Adjusted EBITA as % of Sales Comparable sales growth 75
Sales recovery despite current weakness in the luminaires (fixtures) market in mature economies Around 25% of Philips Lighting sales driven by New Build in Western Europe & North America (WE&NA) Not yet firing on all cylinders: sales recovery despite soft luminaires market in mature economies Philips Lighting New Build Replacement Total Residential 12% 13% 25% Commercial 3% 22% 52% Other 17% 6% 23% Total 59% 41% 1% 3 2 1-1 -2 % comparable sales growth Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 New Build WE&NA ROW Total Residential 7% 5% 12% Commercial 18% 12% 3% Total 25% 17% 42% 28 29 21 Professional & Consumer Luminaires Lamps and other businesses Total lighting 76
Portfolio View: all businesses back to growth and profitability in 21 Lumileds* 21* Adjusted EBITA % Lamps Professional Luminaires Other businesses Comparable Sales Growth % Growth vs. profitability for Jan-June 21; Bubble size represents sales * Lumileds bubble is out of the scale due to large sales growth and hence represented manually in the chart 77
Lumileds strongly contributing to Philips Lighting value Increased success in and focus on illumination Strong sales growth with adjusted EBITA > 2% Illumination sales growing rapidly Illumination design-in wins increasing LTM sales $ Mln LTM illumination sales indexed Quarterly illumination design-in wins growth 1 indexed growth 2 8 6 4 2 Q2 8 Q2 9 Q2 1 Q2 8 Q2 9 Q2 1 Q3 9 Q4 9 Q1 1 Q2 1 1.Q2 28 as base 2.Q3 29 as base 78
Streamlining and reducing cost: bold measures paying off, significant savings still to come Restructuring charges/savings Mln Positive and structural impact on our business 4 Restructuring primarily to reduce production 2 capacity, mainly of traditional lighting technologies such as incandescent -2 7% of restructuring -4 charges will translate into future savings -6 Significant part of charges -8 still to be converted to Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 future annual savings 28 29 21 Savings Charges Cumulative savings Cumulative charges 7% of cumulative charges Restructuring ~1.5% of sales in 21 and 211 79
Cash invested in working capital structurally reduced; healthy cash flow to fund future growth Net working capital as % of LTM sales LTM free cash flow 1 as % of LTM sales Working Capital Mln WC as % of LTM Sales Mln 1.2 25% 9 LTM FCF EBITA % sales LTM FCF % LTM sales 25% 1. 8 6 4 2 2 15 1 5 6 3 2 15 1 5-5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2-1 28 29 21 28 29 21 Reductions in working capital are structural, not short term opportunistic term actions Lower levels of overdue receivables from customers Better payment terms across the board 1. Free cash flow is defined as cash flow from operating activities minus net capital expenditures. 8
M&A in Luminaires & Controls gaining traction Yr Company Business & Rationale Integration 1 Synergies 2 Growth 3 7 Color Kinetics Key player in LED technology Done 8 Genlyte North American presence Done 9 Ilti Luce LED Architectural Done Selecon Dynalite Teletrol Entertainment Lighting Building Controls Multi site Controls 1 Luceplan Designer fixtures Amplex Street Lighting g Controls Burton Medical fixtures Professional Luminaires Lighting Controls Consumer Luminaires 1 Integration means whether the integration into Philips Lighting is on track 2 Synergies mean whether synergies are being realized as assumed before acquisition 3 Growth means whether the acquired companies sales develop as assumed before acquisition 81
Key takeaways The Lighting market is set to grow, driven by LED. We will are ready to grow sales, expand margins, create value 82
Value creation: grow sales, expand margins Global illumination market Grow top-line sales, drive profitability to 12-14% 14% reported EBITA Bln Grow in LED: invest to win 8 Grow the Luminaires business Invest in emerging markets Upgrade mix through h higher h price realization in LED categories 21 Conventional lighting LED lighting CAGR of 7-9%, assuming nominal GDP growth of ~4% 215 Optimize the lifecycle of our conventional lighting portfolio Move to next level in pricing and margin management tools Source: Philips Lighting global market study 29, updated for 21 83
Innovation spend increasingly focused on LED products & solutions Grow sales R&D spend remains at 4-5% of sales; We focus our R&D spend on set to increase in absolute value LED/digital technologies R&D spend, R&D as % of sales R&D spend categorized by technology R&D spend % of sales 8 1 7 57% 65% 75% LED / Digital 6 5 43% 35% 25% Conventional 26 27 28 29 21 4 29 21 211 Actual Outlook Outlook 84
LED adoption driven by strong total cost of ownership advantage and legislation Grow sales Total Cost of Ownership (TCO) is becoming increasingly attractive Energy efficient i sales* (as a % of total t sales) heading to over 6% Example 1: LED Master for retail stores in Singapore Example 2: LuxSpace for hotels in Europe 8% 1, 1 pcs/ 1, 263 Savings vs. Conventional over 3-years -69% 59 Savings vs. Conventional over 5-6 years -46% 321 4 28 29 2 1 211 81 pay back 1 year Legislation driving energy efficient lighting sales EU: All incandescent lamps to be phased out by end of 213. 35W Halogen (Conv.) 4W Philips Master (LED) Fugato (Conv.) LuxSpace (LED) US: Incandescent ban in effect from Q1 211 Other markets: Incandescent ban effective from Q1 211 across Russia and Brazil and Turkey Initial cost Maintainance cost Energy cost * Last 12 months to end of Q2 in year shown 85
Grow sales Grow luminaires and controls business through M&A Create scalable platforms Continue to acquire in a Leverage the upturn in mature to optimize go-to-market, fragmented luminaires markets construction when it maximize margin and controls market comes Customized solutions: tailor made solutions addressing specific needs of a customer Platform for applications and solutions: platforms that can be rolled out across segments and geographies Standard products: wide range of standard products that can be rolled out across segments and geographies Use lighting controls to intelligently monitor and control street lighting and tie together into a centralized streetlight management system Use lighting controls in energy management, building automation, architectural lighting, home automation, and residential solutions. W. Europe (Euro construct) % change 1 5-5 -1-15 Residential Non Residential Tot. Construction 3 4 5 6 7 8 9e 1e 11e 12e U.S. Non-residential construction 8 7 6 5 4 bn. 25$ (left) ann. % ch (right) 3 22 24 26 28 21 212 Sources: BEA, Global Insight (GI), NEMA/BIS sim. of GI macro model 5 4 3 2 1-1 -2-3 -4 Luminaires and solutions ~7% of the lighting market and share is growing 86
We are investing and winning in emerging markets We focus our marketing spend on Emerging g markets as a % of sales growth areas is growing Grow sales Mln 5 6 8 42 26 34 7 6 5 4 38 54 45 15 15 29 Actual 21 Outlook 4 3 2 1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 28 29 21 36 34 32 3 Latin America Asia pacific EMEA North America Emerging markets sales % of sales in emerging markets 87
Expand margins Upgrade mix through higher price realization in LED categories Strong growth in our LED sales across Europe in professional channels Professional LED Lamps sales Europe Strong position in large European markets We are the LED market leader in France, Germany and Italy 2 +348% 1 Q2 9 Q2 1 1.Sales growth YTD Q2 21 vs YTD Q2 29 2.Based on GfK Professional panel 88
Continue to streamline our organization towards a less capital-intensive footprint Expand margins Number of sites Further simplification of footprint Developments over the last 12 months: 16 sites closed 1 site divested 2 sites added by acquisition of business Reduction in warehouse infrastructure underway Cumulative restructuring savings on track to exceed 2 Mln in 21 29 21 Future Conventional Luminaires & LED 28 29 21 211 89
Optimize profitability of conventional portfolio businesses Adjusted EBITA % 29* 21* Expand margins High Intensity Lamps Fluorescent Tube High Intensity Lamps Compact Fluorescent Compact Fluorescent Incandescent/ Halogen Fluorescent Tube Incandescent/ Halogen Optimal management of production capacity and overhead cost Continual purchasing savings to drive bill of material down Product portfolio management Smart price and channel management Comparable Sales Growth % * Figures for January - June each year, bubble size represents sales value 9
Expand margins Move to next level in price and margin management tools Leverage next generation of integral Further enhance pricing i processes and profit & portfolio management tools smart IT solutions Country X 91
92 9 2 Key takeaways We are a stronger company due to measures taken in the last two years; 21 expected be a record year for Lighting The Lighting market is set to grow, driven by LED. We will are ready to grow sales, expand margins, create value
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