Philips Lighting reports continued improvement in operational profitability and cash flow in second quarter

Second quarter 2016 highlights

Total LED-based sales growth of 25%, representing 53% of total sales
Seventh consecutive quarter of year-on-year improvement in operational profitability
adjusted EBITA of €161 million (Q2 2015: €139 million)
adjusted EBITA margin of 9.3% (Q2 2015: 7.5%)
Net income of €57 million, includes separation costs and brand license fee not applicable in 2015
Free cash flow of €60 million (Q2 2015: €-82 million)


Half year 2016 highlights

Continued improvement in operational profitability
adjusted EBITA of €282 million (HY 2015: €249 million)
adjusted EBITA margin of 8.2% (HY 2015: 7.0%)
Net income of €71 million, includes separation costs and brand license fee not applicable in 2015


Eindhoven, the Netherlands - Philips Lighting (Euronext Amsterdam: LIGHT) today announced second quarter and half-year results 2016. "Philips Lighting delivered satisfactory performance, posting a seventh consecutive quarter of improved operational profitability and free cash flow in the second quarter. Our businesses all progressed versus last year, performing in line with their strategic objectives," said Eric Rondolat, CEO. "I am satisfied to see our strategy being successfully executed. The conventional Lamps Business' profitability remains well positioned despite the anticipated sales decline. Our total LED-based sales grew by 25% in the quarter and our systems and services businesses saw double-digit growth, driven by our continued extension of lighting into the Internet of Things. As a result, our LED-based activities now represent over half of total sales. We are pleased with these results, demonstrating the successful execution of our strategy. Our team remains focused on our journey of continuous improvement."

Key figures
Second Quarter First Half Year
2015 2016 Change in € million, unless otherwise indicated 2015 2016 change
1,849 1,734 -6.2% Sales 3,576 3,436 -3.9%
-1.5% Comparable sales growth -1.4%
685 687 0.3% Adjusted gross margin 1,321 1,327 0.5%
139 161 16.2% Adjusted EBITA 249 282 13.4%
128 123 -3.9% Reported EBITA 209 223 6.7%
100 96 -4.0% Income from operations (EBIT) 155 167 7.7%
95 57 -40.0% Net income 125 71 -43.2%
% of sales
37.0% 39.6% Adjusted gross margin 36.9% 38.6%
7.5% 9.3% Adjusted EBITA margin 7.0% 8.2%
-82 60 Free cash flow 74 -18
0.37 Basic EPS (€) 0.47
39,784 35,104 Employees (FTE) 39,784 35,104

CFO appointment
The company also announced the appointment of Stéphane Rougeot as Chief Financial Officer, effective
September 1, 2016. Mr. Rougeot succeeds Rene van Schooten, Business Group Leader Lamps, who in addition to
his current role, held the position on an interim basis for nine months. Mr. Rougeot joins from Technicolor
(formerly known as Thomson), where he served as Deputy CEO and President Technology Business.
Outlook
Our results in the second quarter of 2016 support our confidence that we are on the right track towards a return
to positive comparable sales growth in the course of 2016. Our team remains focused on improving year-on-year
operational profitability.
We expect restructuring and acquisition-related charges for the year 2016 to be in line with 1.5-2.0% of sales as
previously indicated and anticipate such charges to total approximately €60 million in the third quarter, mainly
driven by manufacturing footprint rationalization. In addition, separation costs are expected to total
approximately €20 million for the third quarter.
Financial review
Second Quarter First Half Year
2015 2016 change in € million, except percentages 2015 2016 change
1,849 1,734 -6.2% Sales 3,576 3,436 -3.9%
-1.5% Comparable sales growth -1.4%
-4.6% Effects of currency movements -2.5%
685 687 0.3% Adjusted gross margin 1,321 1,327 0.5%
-488 -473 Adjusted SG&A expenses -953 -943
-87 -82 Adjusted R&D expenses -176 -173
-575 -555 3.5% Adjusted indirect costs -1,129 -1,116 1.2%
139 161 15.8% Adjusted EBITA 249 282 13.3%
-11 -38 Restructuring and other incidentals -40 -59
128 123 -3.9% Reported EBITA 209 223 6.7%
100 96 -4.0% Income from operations (EBIT) 155 167 7.7%
-4 -26 Net financial income/expense -6 -43
-2 -14 Income tax expense -25 -54
95 57 -40.0% Net income 125 71 -43.2%

37.0% 39.6% Adjusted gross margin (%) 36.9% 38.6%
-31.1% -32.0% Adjusted indirect costs (%) -31.6% -32.5%
7.5% 9.3% Adjusted EBITA margin (%) 7.0% 8.2%

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Stéphane Rougeot appointed CFO of Philips Lighting
Eindhoven, the Netherlands - Philips Lighting (Euronext Amsterdam: LIGHT) today announced the appointment of Stéphane Rougeot as Chief Financial Officer, effective September 1, 2016. Mr. Rougeot succeeds Rene van Schooten Business Group Leader Lamps, who in addition to his current role held the position on an interim basis for nine months.

"I am very pleased to welcome Stéphane Rougeot as our new CFO," said Eric Rondolat, CEO of Philips Lighting. "Stéphane brings impressive executive experience in financial leadership positions with major international technology companies. His background will enable him to play a key role in driving our strategy and reinforcing our leading position in the global lighting industry, while building strong and durable relationships with the investor community.

"I want to say a special word of thanks to Rene for doing double duty during the separation from Royal Philips and subsequent IPO. His leadership as acting CFO, in addition to his regular roles as Member of the Board of Management and Business Group Leader Lamps was pivotal to the success of the IPO." Mr. van Schooten will continue as Management Board Member and Business Group Leader Lamps.

Mr. Rougeot joins from Technicolor (formerly known as Thomson), the technology company serving the media industry. He was Chief Financial Officer from 2008 to 2015, and also Head of Strategy and Portfolio Management as of 2012. He was appointed Deputy CEO, President Technology business group in 2015. Before Technicolor, he was Group Controller of France Telecom - Orange. He has also held various senior financial positions, as well as roles in investor relations and corporate communications.

A French national, Mr. Rougeot holds a post-graduate degree in International Finance from the Paris IX-Dauphine University and is a graduate of the Institut d'Études Politiques, both in Paris, France.

The Philips Lighting Supervisory Board will propose the appointment of Mr. Rougeot to the Board of Management at the next General Meeting of Shareholders, to be held in May 2017.

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