Earnings Call: Q2 2020

Jul 24, 2020

Ladies and gentlemen, welcome to the SignifAI Second Quarter And First Half Year Results 2020. For the 1st part of this call, all participants will be in a listen only mode and afterwards there will be a question and answer session. I would now like to give the floor to Roger Dicks, Head of Investor Relations. Mr. Dix, please go ahead, sir. Good morning, everyone, and welcome to the SignifAI earnings call for the 2nd Quarter Results 2020. With me are Eric Rondola, CEO of SignifAI and Renee Von Skoten, CFO. Javier Van Engle, who has been appointed as our new CFO, who will take over from Cenafon's hotel as of the closure of Q3 in October is also joining us today. As a reminder, at the beginning of this year, we have announced our intent to adapt our business structure to enable a stronger customer focus and enhanced specialization cushion speed. As part of this change, we have moved to 3 divisions: digital solutions, digital products and conventional products. We have adopted our segment reporting accordingly as of this quarter. For the historical comparable figures for the Digital Products division, we would like to refer to the IR notification that has been shared with you on June 11, 2020. In a moment, Eric will take you through the second quarter business and operational performance. Frenabe will tell you more about the financial performance in the second quarter, and Eric will end today's presentation with the highlights of the first half of twenty twenty and the outlook. After that, we will be happy to answer your questions. Our press release and the related slide deck were published at 7 am Cet this morning Both documents are now available for download from our Investor Relations website. A full transcript of this conference call will be made available as soon as possible on our Investor Relations time. With that, I will now hand over to Eric. Thank you, Rochir. Good morning, everyone, and thank you for joining us today. I propose that we go immediately to Slide 4, with the main elements of our performance in the second quarter. The installed base of connected light points increased from 1,000,000 in Q1 to 1,000,000 in the second quarter of 2020. Total sales decreased by 0.6 percent to 1,000,000,000 or by minus 2.5% on a comparable basis. Elite based sales represented 80% of total sales compared with 79% last year on a pro form a basis, including Cooper lighting and KLIGHT. And we continue to make good progress on reducing our cost base. Excluding the impact of currency movement and changes in scope, our adjusted indirect cost decreased by EUR 86,000,000 a euro, a reduction of 19.1 percent. Our adjusted EBITA margin remained stable at 9%, including a negative currency impact of basis points. Our net income increased from 1,000,000 last year to million for this quarter, mainly as a result of lower restructuring costs and a onetime noncash tax benefits from changes in the organizational structure. We are also pleased with our free cash flow of EUR 158,000,000 which reflects maintained profitability, strong working capital management, the consolidation of Cooper lighting, And it also includes a EUR 40,000,000 temporary positive impact from real estate proceeds and government extended payment terms for taxes. Let's now move to Slide 5, where you can see a snapshot of the financial performance of our growing profit engines, namely the digital solution and digital products divisions. Comparable sales of the growing profit engines declined by 21.9% due to the spread of COVID 19 and the subsequent measures taken by governments, but also by our customers. Despite the decline in top line, the growing profit engines have improved the adjusted EBITA margin by 100 basis points to 9.5% with both divisions improving their profitability, driven by an increase in gross margin and indirect cost saving. Let me now provide you with more details for each of the divisions, starting on Slide 6, with digital solutions. Nominal sales increased by 23.6 percent as a result of the consolidation of Cooper Lighting. Comparable sales declined by 22.4% and reflects a significant decline in demand across all regions as a result of the COVID 19 impact. The most severely impacted markets were Canada, India, Southeast Asia, France and the UK. LED based sales accounted for 91 percent of total sales and connected base sales represented 18% of total sales, excluding Cooper lighting at this point in time. The adjusted EBITA margin increased by 80 basis points 9.6%, which was driven by an increase in gross margin, but also indirect cost saving. On the next slide, Slide 7, you can see some of the business highlights of this quarter for Digital Solutions. I'd like to zoom in on our partnership with the New York Power Authority, supporting smart street lighting in the state of New York. So this project was effectively launched in 2018 by a Governor Andrew Cuomo, and it aims at replacing at least half of the more than 1,000,000 street lights in the state of New York with energy efficient and sustainable alternatives. Reinforcing our leadership in connected street lighting Gatt House Insight, which was formerly known as Navigant Research, again, recognized us as the leading company, it's smart lighting, well, at the same time, DECRA has awarded us with its security certification, confirming that our connected lighting systems are based on a certified secure development process. With the 1st lighting company that has been awarded with such recognition. I also like to highlight a new innovation that we launched, inspired by Nature, and called Natural Connect. Okay. I would let me move to Slide 8. Where we're going to talk about digital products. Comparable sales declined by 21.1%. LED based sales accounted for 98% of total sales, while connected base sales represented 14%. Overall demand was significantly impacted by the COVID 19 pandemic. The most severely impacted markets were North America, India, France, Spain, UK and also Southeast Asia. Online sales in the consumer channel showed a solid performance and sellout rates for connected home lighting remained strong. The adjusted EBITA margin improved by 110 basis points, driven by positive mix impact, reduced price erosion and improved cost structure in connected home lighting. There are a couple of business highlights that I would like to bring to your attention on Slide 9. So first of all, we introduced our Phillips shoe portfolio in Russia, and providing Russian consumers with the full breadth and depth of the Phillips new portfolio, including bulbs, fixtures, Dema switches, light streets and sensors. At the same time, we expanded our Phillips U product portfolio. This includes the new Phillips U wide bulb, with output double to 600 lumen. We added the Bluetooth capable Philips, white ambiance indoor range. And new product search as a new family of windows selling fixtures and adapted the Phillips hue light Street. And in the emerging markets, we launched the Nissan interlaced optics, whose double layered up design with micro lens, produces, even light distribution and reduces glare and as such, rain forces, our eye comfort position. I propose that we are now moved to Slide 10 to discuss the performance for conventional products. Comparable sales declined by 25.2 percent. The division showed a solid performance partly as a result of strong demand for UVC. And horticulture lighting. We believe that the decline in sales is lower than the overall market decline resulting in continued market share gains. The adjusted EBITA margin remained robust at 17.5%. Let's now turn to Slide 11 to talk about our investment in UVC Licensing. So let me start with saying that SignifAI is leveraging more than 35 years of expertise in UVC lighting to address the growing global needs for the disinfection of air surfaces as well as objects. Our UVC lighting is well proven and trusted as an efficient disinfectant. This was recently validated in a laboratory test by the Boston University showing that the SignifAI UBC light sources inactivate the virus that caused this COVID-nineteen in a matter of seconds. To complement our portfolio, we have recently acquired the asset of jermisidal lamps and application, also called GLA, an Netherlands based company with upper room air disinfection luminance. We have also expanded our portfolio with 12 new families of UVC based products for air, surfaces and objects for professional markets. And are increasing our UV lights and source production capacity by a factor VIII this year. On the right, you can see a picture of GLS disinfection product with Lamolas directing the light upwards. On Slide 12, You can find an update on the integrations of both Cooper lighting and KLite. So let start with Cooperizing, we continue to anticipate cost synergies of more than USD 60,000,000 per year. To be achieved over 3 years, but we managed to accelerate the cost synergies that were planned for the 1st year. The bill of material savings remain ahead of plan. Sourcing optimization is also ahead of plan and the savings from supply chain are on track. We achieved significant cost avoidance from shared service centers and also identified additional revenue synergies, doubling the original objective. Also, the integration of KALIGHT is well on track. The supply chain of KALIGHT is fully operational again, while sourcing synergies are on track. People and system integration are complete and insourcing plan is also ahead of what we had originally planned. Regarding the sales to 3rd, we see continued loyalty of existing customers of KALIGHT, and we are capturing also new customers. This is what I wanted to cover regarding the business and operational performance. I will now hand over to Renee who will tell us more about the financial performance for the second quarter of 2020. Thank you, Eric. Let's go to Slide 14, where you see the adjusted EBITDA bridge. The adjusted gross margin as a percentage of sales increased by 90 basis points in the second quarter of 2020 including a currency effect of minus 50 basis points. The impact of price on the gross This was manifest in both digital solutions and digital products, price erosion in LatAm's and electronics continue to slow down. While we have been able to selectively increase prices on part of our portfolio. Our indirect cost base decreased by 1,000,000 compared with the second quarter in 2019 when excluding the impact of ForEx and changes in scope as a result of the acquisitions of Cooper lighting and K Lite. The overall ForEx impact on the adjusted EBITDA margin was minus 1,000,000. Scope and Other includes the effects of Cooper lighting and KLIGHT acquisitions. On Page 15 of Slide 15, can see the quarterly development at a very early stage of the COVID 19 outbreak, a broad range of mitigating actions were identified to preserve profitability. Furthermore, we benefited from the carryover effect for many initiatives that we implemented last year, and in the first quarter. As said, this has resulted in indirect cost savings of $86,000,000 in the second quarter, excluding the effect of currencies and changes in scope, of which 1,000,000 were related to non structural cost savings because of solidarity measures and government support. We had a positive currency impact of 1,000,000. Hence, our adjusted indirect costs were 1,000,000, excluding scope additions. By adding 1,000,000 coming from scope effects related to the Cooper lighting and KLite acquisitions, we ended with total adjusted indirect cost of 1,000,000. We continued to work on initiatives that will further decrease the indirect cost base. We will stay on top of what's happening around us and adapt our cost base as soon as we quarter of 2020. On the next slide, Slide 16. When we include sales of Cooper lighting and K Lite on a 12 month pro form a basis, working capital decreased by 170 basis points to 6.3% of sales in the second quarter of 2020. The improvement was mainly driven by agile inventory management and active monitoring of receivables and payables. Let's now take a closer look at our net debt position on the following slide, Slide 17. Since the end of Q1 signifies cash position has increased 1,000,000 to 1,000,000,000 at the end of the second quarter. Net debt decreased by 1,000,000. Next to the profit we generated in the quarter and the changes in working capital I just mentioned, you can see all the items in the bridge that impacted cash and therefore our net our debt position. Net CapEx was 1,000,000 in the quarter and included 1,000,000 of proceeds from the sale of real estate. The net change in provisions amounted to 1,000,000. Next to that, we paid million for tax and interest. All in all, our net debt position amounted to 1,000,007,06,000,000 at the end of the quarter. This represents a net leverage ratio of 2.45 times, coming down from 2.7 times at the end of Q1. Before I hand over to Erik, I would like to inform you about our FX outlook. Based on the prevailing spot rates At the end of June 2020, the currency impact on the adjusted EBITDA margin for Q3 to 2020 is expected to be neutral around minus ten basis points for the full year 2020. Let me now hand back to Erik for the final part of the presentation. Thank you, Renee. Let me now briefly zoom in on the overall performance of H1 on Slide 19. So despite the impact of 2019 on the top line performance, we have been able to improve our adjusted EBITA margin by 10 basis points to 8.5%. Which includes a negative impact from currencies of 30 basis points compared to the first half of twenty nineteen. We are very satisfied with the continued savings on bill of materials and indirect costs. As you can see, Our currency comparable indirect costs decreased by EUR 141,000,000, which is a reduction of 15.5%. We had a significant underlying improvement in our free cash flow in the first half of twenty twenty, Also, when taking into account the EUR 40,000,000 positive impact related to delayed tax payments and real estate proceeds. On the next slide, Slide 20, I would like to give you an update on the progress we made on our sustainability targets. So in the first half of twenty twenty, sustainable revenues represented 83% of the total revenues of the company, exceeding our targets of 80%. We sold already EUR 2,600,000,000 elidelands and luminaires in the period from 2015 until the first half of twenty twenty. Well ahead of our commitments to deliver more than 2,000,000,000 LED lamps and luminaries by the end of 2020. We have also decreased our waste to landfill by 89% compared with last year. And we are ahead of our targets. Related to a safe and healthy workplace and a sustainable supply chain. We are very pleased that we have reduced our carbon footprint by 26% compared with last year. And I went on track to achieve carbon neutrality this year. Furthermore, we have announced that we will start phasing out plastics with the aim to be plastic free on all humor related packaging into 2021. Last but not least, let me share our excitement and my personal excitement that our new targets as part of our next 5 year program will be announced in the second half of twenty twenty with even more ambition commitments. So let me now go to the final slide of my presentation. Slide 21 to discuss the outlook. So considering the persistent uncertainty about the future course of the pandemic and also the length and depth of the impact on the global economy, we still do not provide financial guidance at this point in time. However, We are confident in the underlying resilience of our businesses and operating model and that our liquidity needs are well covered by the financial framework we have in place in line with our policy to prioritize future deleveraging We therefore confirm our intention to utilize up to 1,000,000 to reduce gross debt into a 20. I would like to conclude this presentation by saying that I'm very satisfied with all the measures we've taken to protect the health and safety of our employees and the people around us while preserving profitability and cash flow. I believe that all these measures will help us to strengthen our market positions to come out of which Rene and I are going to be happy to answer. That is 1 Our first question comes from the line of Daniella Costa from Goldman Sachs. Please go ahead. Your line is open. Hi, good morning. I'll select just one and then I'll get back on the queue, but I hope you're all well. Maybe I'll start by asking regarding your project business? And what are you observing in terms of like project, project visibility for the second and into 2021, if you can comment on what's the tendering outlook may be there? Yes, good morning, Daniella. So, it really varies across the world. As you can see, the intensity of the lockdowns really vary across geographies. What we see at this point in time I'm going to take a general statement that I'm going to go to more precise, details. So first of all, we see worldwide that the big project, are still on, very often also supported by stimuli from local governments, where we have seen also an impact is on the medium sized projects that are sometimes cancelled or sometimes further delayed. We have been securing for the second half of the year major projects in street lighting in Middle East. And we're very happy about that. These are projects we've been working on for a long time. And if I talk to you about, those projects, but because they're quite material and they will be, partially invoiced before the end of the year. And there's a substantial part of this project that are going to be invoiced in the second part of the year. But from a project standpoint, what we see still moving are the infrastructure projects street lighting, moving on. And we see also opportunities in connected lighting. When I look at our professional business, the systems and services part of the business in terms of comparable sales growth has done much better than the product part of the business. Our next question comes from the line of Martin Keith from Citi. Please go ahead. Your line is open. Thanks. It's Martin from Citi. Just a question on, Cooper. I mean, it does look like ability is certainly better than expected externally. I mean, you have mentioned that some of the synergies have been, pulled forward. Just to get a bit more color on what was happening. Has the underlying market been perhaps less bags, in the US than it has been elsewhere or is this really been driven by, a big acceleration of the synergies that you had already planned? Yes, good morning Martin. Well, you've seen the situation as well as we do. We've been impacted in the U. S. Market, which the U. S. Market is sometimes complicated, defined as an overall market because they are very different trends, whether you are in the state of Georgia or you are in the state of New York or California, many different things and many different conditions applied. But at the end of the day, if we go and look at the Cooper situation, what we decided, when the crisis broke was to spend more time, more energy, more resources on accelerating the synergies. And we have 2 types of synergies, the back office synergies, the famous $60,000,000 that we've commented about. We still believe that this is the target we have to achieve over the coming 3 years. But what is happening at this point in time is that we're going to generate substantially more at the end of the 1st year. So we clearly have accelerated those synergies specifically on the sourcing part of the business, but also on generating a bill of material saving. And that has been a fantastic performance of our teams in Q2. So that's on the back of synergies. On the front of these synergies, we've been able, since we work together to identify additional front office synergies, and we believe that we can double the number that we had originally planned. So as you can see, the integration is really taking place from a systems standpoint, from a people's standpoint, it's running extremely well, but we've been able to accelerate synergies. When I look at Cooper and I compare our performance against the business plan, we are declining, of course, much more than what we had anticipated in the business plan from a top line perspective because of the COVID 19 crisis. But at this point in time, at the end of H1, and we believe we capable to sustain, to sustain that performance until the end of the year, we are generating From profit perspective and from a cash perspective, the same amounts in absolute value than the ones we have in the plan. Okay. Thank you. That's very helpful. Thank you. Our next question comes from the line of Andreas Willey from JP Morgan. Please go ahead. Your line is open. Good morning. Thanks for the time. I have a question on the strong price you mentioned in the quarter and the spread you basically managed to achieve between sourcing pricing and sourcing costs relative to your own pricing. What part of that improvement in price is something you think will continue as, maybe price pressure normalizes and LED matures a bit in terms of technology and what is more specific to a quarter where obviously everybody was kind of trying to protect their profitability and maybe competition in that sense was different than in the normal quarter? Yes, I think you've basically answered to the question on Andreas. On one hand, there's less cost that you can extract from a technology, which is becoming mature. But on the other hand, when the volumes like going down worldwide, We've seen much less aggressivity in pricing than during other periods and it's solving to the fact that if you have a top line, which is going down and if you bring your margin down and bring your price down, it has a major impact on profitability and then a major impact on cash. So at the end of the day, we've seen a much, more rational behavior, I would say, during that period of COVID 19 crisis. And is that continuing now when you look at projects you're bidding for now? Or was that just a short term impact during the lockdowns? Well, it's not only on projects under us. It's also on product sales on a regular basis. We believe that we are in a period which is very complicated for many companies and probably many actors and many competitors in the lighting in the 3, we're working on a C and a margin. So they need to apply a very rational strategy when it comes to pricing. So If we look at the upcoming months, I believe it's going to continue for a while until we really exceed that situation and we go into a more normalized a market situation, I think that this is something that we have to continue to expect. Thank you. The next question comes from the line of Lucy Carrier from Morgan Stanley. Please go ahead. Your line is open. Good morning, gentlemen. Thanks for taking my question. I was hoping you could give us some color on how the quarter has actually developed from from April to June. And maybe how we should think currently on the current trading in July versus June? That's my first question. May was better than April in revenue and June was better than May from a comparable sales growth perspective. So we've seen a sequential improvement during the quarter. As we had originally estimated it. Now the problem you see is, can we really count on our exit rate to understand what's going to happen in the next quarter. Well, at this point in time, for us, Q3 is a bit different than Q2. If you listen to what people said, they are expecting a sequential improvement in Q3 and then in Q4. And this is what we have based our hypothesis on, at this point in time. So we should see sequential improvements, both in Q3 and also potentially in Q4. But at the end of the day, we need to understand that the situation is extremely volatile, and the level of uncertainty remains. If you look at Q3 specifically, September is a very important point in Q3 because it's clearly the biggest one of the quarter. And who knows what is really going to happen in September when you see the rate of infections going back up Is this going to be followed by further lockdowns in economies? But we don't know at this point in time, so we need more than ever and to be, adaptable and to show a great level of agility in what we've been able to show in Q1 and Q2. But, we are more optimistic at the beginning of Q3 than we were at the beginning of Q2. Thank you very much. And if I can have a follow-up on the Cooper synergies, please, following Martin's question. I guess if you are kind of well ahead on the cost synergies, do you think there is scope for you to maybe actually a see those after the 3 year period that you have set for yourself. And you were mentioning the front office synergies to be potentially the double of your initial objective. Are you able to quantify those as well, please? Yes. We've communicated only on the back of synergies we see. So the 1,000,000, we don't see, after 3 years, we don't see us doing much more than the 60,000,000, but we're going to accelerate the delivery of those synergies across the period. What we see clearly is our capacity to double the front office synergies. We didn't give a specific number about those. But it's quite interesting. So we are also generating more than what we were expecting in the 1st year and year to date. But we have lined up many actions up to 100 actions of potential front office synergies, and we at this point in time implementing the the priority ones. And it's working, and it's working extremely well. So back office synergies, not really more than what we had forecasted, but we're going to accelerate and generate it faster. And from a front office synergy, not only we can do more, but we will also do it faster. Thank you very much. Our next question comes from the line of Mark Hesselink from ING. Please go ahead. Your line is open. Thank you. My question is on the cost savings. Quite some impact on temporary measures in the second quarter, and also elaborate in the press release on additional cost savings for the for the second half the year. Could you maybe talk about the differences between temporary measures that you're going to take in the second half and some of the structural things that will continue to come in the second part? Mark, good morning. So if you remember, we said that Q2 would be a very specific quarter because we were seeing a major impact on our on our top line. What has been the case, 22.5 percent CSG decline for the quarter. So we did implement some temporary measure as the solidarity. We ask our people to voluntarily participate, to working one day less during the quarter. So that's 20% less. Which is pretty much in line with the decline of the revenue of the company. And by doing that, they were also accepting to have a reduction of the salary pro rata. So that has happened. Many people participated with commencing last time, you know, 80 but 85% of our population worldwide voluntarily participating in the scheme at various levels. Now we are recording in Q2 when we take into account that initiative and the government help, a help of 1,000,000 on the cost, 13 on the cost of goods sold and 30 on the nonmanufacturing costs. So that's what we wanted to indicate to you guys so you could, understand what had been the impact of these specific and nonrecurring measures in Q2. These measures are not going to be, conducted again in Q3. In Q3, we are going to continue with our extreme discipline and rigor on costs, which is what we had implemented also successfully in Q1, which is about, really targeting discretionary costs, making sure that we stop projects that may not deliver the expected benefits because of the situation from an economic standpoint. And also reallocate money where it matters. We've been continuing to invest quite heavily in our digital transformation and also in the new technologies and namely UBC lighting that we've commented about previously. So I would say that, the upcoming quarters are going to be looking a bit more like Q1 versus Q2, which was impacted by those very specific contemporary measures. Okay, that's clear. Thanks. And then maybe as a follow-up, in your outlook, you mentioned, the underlying resilience of the business model, and I think that very clear in terms of the year with the margin, more or less flat or even slightly up. Is that the kind of resilience that you then what you mean that that commenced in the outlook statement? Yes. Well, absolutely, because we've declined by 5%, but at the same time, we've been able to maintain the operating margin. So that's one level of resilience. The other one is probably what we've been able to do with our teams, for us protecting our human capital, as I've said also, since the beginning of January, is our number one priority. I think we did that well and making sure that we were protecting the health of our people at different levels. I'm talking about physical health, And, we successfully implemented very stringent measures in all the locations that we occupy worldwide we really had a very good follow-up of those measures by all our employees. But at the same time, it's also about mental and psychological have. So we managed during the crisis to keep the people connected together. We managed to bring a high level of motivation in a space of uncertainty. At the same time, when we measure our employee Net Promoter Score, which is the index of employee satisfaction at the end of Q2, it is the highest ever, with a very high level of participation because 85 percent of the population has been participating. So these are very good signs and also we did decide at the beginning of Q2 or probably during the end of Q1 that we would not be laying off because of COVID nineteen in order not to bring to the society more problems. And in order not to put people industry when it's very difficult to find a new job. And I think we have been able to be extremely resilient also from a human capital standpoint. And I think it's extremely important during a crisis. You need to make sure that your teams are on board. You need to make sure that your teams are motivating. There may be not only professionals, but personal complicated situation, and we need to find a way to address that. And, it's never perfect, but I think that, what we did during Q2 was quite good and helped us to show that level of adaptability and agility. Which led up to quite a strong level of resilience in our financial performance. Okay. Thank you. Thank you. Our next question comes from the line of George Traverstering from the Bank of America. Please go ahead. Your line is open. George, your line is open. If you could please put yourself off mute. Apologies. Can you hear me now? Yes. Sorry, sorry for that. Thanks for taking my question. On the UVC demand and product portfolio, can you provide any color on the size of the market opportunity and how we should think about the R and D and other investment required to bring the products to market. So, so first of all, let me take it by part. What we've been producing in the past 35 years are the light sources? So these are the lamps that aim its UV light. And it's a technology that we master, but it's also a technology which is quite it's sensitive in terms of quality because we need to produce a very, very pure and high quality glass and we know how to do this. So we've seen that part of the business growing multiple in the course of I would say with the 2nd quarter, Q2. And we have estimated that this will continue at a very high pace, until the end of the year. So in order to be able to answer to that increasing demand, we have made a few commitments. So the first one is to increase our production capacity by factor VIII. And this is happening in 3 steps. One step that has already been done, there are going to be a second step in September and a third step at the end of the year. And in the beginning of 2021, we are going to have an increased capacity by factor VIII. Versus what we originally had. But what we're also doing, we're not only selling light sources we're developing also range of luminaire. And that's also important for us because it generates much more turnover. And we are bringing to the markets new offers in terms of Luminess. So when I say Luminess, it's in the broad sense. We have effectively fixtures for disinfecting the air, disinfecting surfaces and objects. We have also robots And we have also a UVC chambers in a way people could put different types. It can be things, different types of things. It can be food. It can be tools. It can be, clothes that have been tried by people and so on in order to have them disinfected. So 12 new families of products are going to be launched before the end of the year. We also acquired a company in the Netherlands that company is called GLA. And it is specialized with a very dedicated portfolio for upper air disinfection, meaning that the light, looks upwards as you have seen on the picture I was describing previously, and it cleans the air by conception. This is a part of the portfolio that we didn't have, so we acquired that company to acquire that portfolio, which we are now expanding worldwide. So as you can see, we believe in that business because it is a preventive measure. So it is necessary during the crisis, but we believe that this will survive the crisis, we would want to live in spaces, whether it is in schools, retail spaces, office spaces, manufacturing plants, warehouses, hospitals, we would want to live in spaces that are free of germs and viruses. And we know that our lights are very efficient and to eradicate viruses. So this is everything that we're doing on UVC and we see an interesting perspective ahead. Increasing our capacity, but they're also moving to alumina business, which is attracting more turnover. Thanks a lot for that. And maybe a follow-up on kind of the end market trends that you're seeing from a regional perspective Can you give a bit more color on what you're hearing from your digital solution customers in terms of activity levels in Europe and the US and perhaps how far are we away from the level pre COVID-nineteen? So overall, except probably, I would say, in the Nordics country, we are worldwide lower to where we were, pre COVID. When I look at the different businesses that have in Digital Solution, clearly, the systems and services part, which is the connected lighting part of the business, is performing better than the more traditional product path. If I go across geographies, I would say that we see a huge impact in some countries of Asia. So mainly India and Southeast Asia, you know, that we had to face a very, very strong lockdown not only in India, but also in countries like Malaysia, Philippines and Thailand. So we felt strongly the impact. We also felt strongly the impact in a country like France, in a country like Canada, in a country like France because it went up in France to, locking down the construction business. And then when the construction business is locked down. This has a big impact on our business. So from Countries of Europe, Countries of Asia, I have shown strong impact, positive, as I was saying, in Nordics, Benelux, Indonesia where we saw a good performance in digital solutions. But even in China, we greatly improved after a strong impact in Q1. But we are far from Thanks a lot. Thank you. Our next question comes from the line of Rajesh Singh from Societe Generale. Please go ahead. Your line is now open. Hi. Thanks for taking my question. My question is related to the government support and security, cost saving is it possible to break up the whole cost saving in these two parts? We don't give that detail, but it 43,000,000, and the vast majority is, the voluntary and solidarity move. Okay. So there's no major saving or we can say the impact for from government support system is not that significant. No, it's a minority part of the EUR 43,000,000 and it was in a limited number of countries. So I'm talking here about the U. S, Canada, France, Germany, Singapore, but it's a minor part of the 1,000,000. Okay. And my follow-up question would be like how much of this solidarity cost saving would continue in weak you. If I heard you correctly, I think it might not be, that severe, in in, in 3rd quarter. Right? You you were cost saving would not be as significant from the solidarity measures? No, we're not pursuing that initiatives in Q3. It was own something that we only want to do. Thank you. Our next question comes from the line of Joseph C from Redburn. Please go ahead. Your line is open. Hello. Thank you for taking my questions. I have one on your professional division or the now called digital solutions. Can you give us some color on the a big regional performance in North America, Europe and rest of the world, please. And in terms of organic growth rates, if possible, as well as exit rates. And also, in addition, if you can touch on how Cooper performed against your own North America professional business, that would be great. That was my first question. Yes. Good morning, Joseph. So globally, as I've said previously, we are declining in all the region, I would say, pretty much in line with the lockdown measures. As we've commented, previously, if it's only recreational activities at Allowedown, we are around minus 10. If we include retail, it's between minus 30 to minus 40. And if we include a construction, it can go up to minus 60 to minus 70. So then it depends on the countries, depending on the lockdowns. We have, different situations. From an exit rate, also in Digital Solution. We have a better May than April in comparable sales growth, and we have a better June than May. But once again, I don't take the exit rate as a real indication of what's going to happen next for the reasons I've expressed previously. Now when we look at the Americas, specifically, and digital solution, we are and Americas, let's say, U. S, I'm very happy about the performance. We can also benchmark it with what's happening on the market. And I think that, we are doing a great job there. There's no major difference between the Cooper lighting parts of the business and the historical parts of the SignifAI business, they are both performing in line with the market trend. I believe also slightly better than the overall market decline. That's from a top line perspective. And from a bottom line perspective, we could, with the integration of Cooper, do a lot of very fast improvements on the bill of material, exchanging between the 2 companies, and that has been very fruitful in Q2. So you've seen the performance of a digital solution with an improvement of 80 basis points of the operating margin despite a decline of slightly above 22% for the quarter. And I would say that the Americas have contributed to that. As well as Europe where despite the decline, we had quite a strong level of resilience from a P and L perspective. Thank you. And my follow-up question is on your New York lighting projects, light lighting project. You mentioned that the plan was to replace 500,000 straight lines with Connected lighting. I think the project already started back in at 18? And can you tell us how many of those 500,000 have you done so far? And also, if you could, the phasing of project in the next 2, 3 years and also the revenue size, if possible? So we don't indicate specifically your revenue size, Joseph, on that project. What is interesting is that it is a multiyear project which is corresponding to the willingness of the New York Governor to bring smart lighting to the state of New York. So the state of New York is about over a million a light source at this point in time, and they have the objective to connect 500,000,000 of them. At this point in time, only a very small number has been achieved at what is remarkable in our participation to that project, it's about the connectivity and interactivity platform. So the interactivity platform has been selected by the state of New York to be able to control and monitor all the lights that are going to be installed and that are going to be connected. So that is going to happen gradually. So gradually, luminaires will be installed, by the way, they will, maybe not all be from us, but the nodes, the connectivity and the software backbone is going to be ours. Look, we're very proud to participate to such a project which for us is really showing how either cities or states should really tackle the issue of climate change because as you can imagine, we are working together to do substantial saving on the energy bill and also improving the safety and security in the industry. So All that is, I guess, a very positive sign in moments where the world is is not going as well as we would like question comes from the line of Eric Fondenhooding from Reeb. Please go ahead. Your line is open. Hi, good morning. This is Eric Vanetting of the VB. I think most of my questions have been answered, so I have only 2 short follow ups. First of all, office related to the UPC products, and especially also the introduction of lighting fixtures. Just in terms of it's a large range of end clients in terms of officer schools, gyms, warehouses, public transport. Are you able to give me us some clue of the potential size of this addressable market and the revenue potential of this? I think you rightly said, I think that this is much more linked to the application. So we're really developing the application at this point in time, understanding in a given space, given the volume, given the surface, given the application, what people do in that space, we are targeting different types of technological solution. Look, we are sizing the market as we speak because this involving, it's evolving on a daily basis. Look, I hope that for the Capital Market Day that we still plan to do before the end of the year, we're going to be able to give you more insights because it is a moving target at this point in time. We start to realize that the potential ahead is interesting and going on a daily basis. Okay. Thank you. Then another follow-up on the comparable sales trajectory. You mentioned that you, yeah, you mentioned take too much from the exit rate. Are you able to give that exit rate? I know you the full quarter is around the low 20s in minus terms. Able to give an exit rate for where things stood about a month ago? Let's put it this way. Eric, the best pro I can give to you is if we don't go into, of the economies, are not going into, additional and severe lockdowns in Q3, we should see a sequential improvement on our comparable sales growth for Q3. And this is what we are at this point in time taking as a hypothesis. Yes. So if you look at the exit rate, is that is it more towards, I don't know, minus 15 or minus 10? Where did things stood at the end of Q2? Look, we're not really commenting, but, if the economies continue to improve the overall performance in Q3 should be better than the exit rate in Q2. Thank you. Our next question is a follow-up question from Daniella Costa from Goldman Sachs. Please go ahead. Your line is open. Hi, thank you for taking my question again. I wanted to ask on the free cash flow and the seasonal profile of the free cash flow that you expect, this year normally would have had much stronger cash free cash flow in the second half, but you had a very strong first half in the first place. So shall we expect a different seasonality from normal this year, or still be a much stronger second half if possible. Thank you, Daniela, for asking this question. Indeed, we have a story history of strong cash flow in the second half of the year. We also remain very confident that our cash flow will be strong for the second off as well. I like to add, of course, that may be the phasing over the 3rd and the 4th quarter might be a little bit influenced. Erik already alluded to that. September is a very strong month. This high season also goes into October November. You have seen that our working capital is at a very healthy level at the end of Q2. But of course, if we have a lot of sales in September, automatically, even when the quality of the receivable stays the receivables will go up. At the same time, we also want to make sure that we can realize the sales in October November. So this also has an implication for our stock levels. But overall, for the full second half of twenty twenty, we're confident our repetition of our intention to also reduce our net debt up to 1,000,000 is, reflecting that confidence. Very clear. Thank you. Thank you. We are now reaching the end of the call. And we will now take our last question from the line of Andreas Whitty from JP Morgan. Please go ahead. Thank you for squeezing in a follow-up. I just wanted to ask structuring, obviously, you didn't spend a lot in the quarter. As you said earlier, you prioritized the short term savings for now. But what should we expect for normalized restructuring going forward? And would you expect to see at some point some pickup in that spending, particularly should revenues not fully return to pre COVID levels globally? In the next 4 or 5 quarters. Yes. Thank you, Andreas. Of course, we stick basically to our overall restructuring process. Of course, you have noticed that in the second, second quarter, we have been, put things a little bit on their break to also look what is happening, and you might expect a catch up in the third quarter as well. So overall, our guidance has not changed in in this context. I would now like to return the conference call to the speakers. Ladies and gentlemen, thank you very much for attending today's earnings call. And for taking part in the discussion about our results. If you have any additional questions, please don't hesitate to contact Serena or myself. We are happy to answer your questions. And again, thank you very much and enjoy the rest of your day. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.