Earnings Call: Q3 2019

Oct 25, 2019

Ladies and gentlemen, welcome to the SignifAI Earnings Call. Please note that you're limited to one question and one follow-up per round. I would now like to give the floor to Robin Jansen, Head of Investor Relations. Mr. Janssen, please go ahead, sir. Thank you, Sarah, and good morning, everyone. Welcome to the Spotify earnings call for the third quarter results 20 team. With me are Eric Robillos, CEO, SignifAI and Stephane Goujon, CFO. In a moment, Eric will take you through the third quarter business operational performance. Stefan will then tell you more about the financial performance in the third quarter. Eric will end today's presentation with the financial outlook for the year and some concluding remarks. After that, we will be happy to answer your questions. The 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 website. With that, I will now hand over to Eric. Thank you, Robin. Good morning, and thank you for joining us today. Let's go to Slide 4 with the main elements of our performance for the third quarter. Comparable sales declined by 5% as we were impacted by a highly but a high comparison based in lands due to the halogen bulb ban in Europe that came into effect in Q3 2018. In addition, we faced a more challenging macro environment with lower market activity in Europe, U. S. A greater China as well as a major impact of tightening liquidity in India. Our LED based sales increased on a comparable basis by two point 6% to 78% of sales. And our installed base of connected light points increase from 50,000,000 in Q2 to EUR 53,000,000 this quarter. We continue to make good progress in reducing our cost base. Excluding the impact of currency movements, our adjusted indirect cost decreased by EUR 22,000,000, a reduction of 4.7%. Our adjusted EBITA margin was down 100 basis points to 11% due to the high comparison base in Lambs and a 30 basis points negative impact from currencies. Our net income slightly decreased to 1,000,000, mainly due to lower operational profitability and higher restructuring costs. Our free cash flow amounted to 1,000,000 which included a positive impact of EUR 80,000,000 from IFRS 16. The level of free cash flow reflects the reversal of the phasing of payables and receivables of around 1,000,000 that we talked about when we published. Our Q2 numbers. When we announced our Q2 results, we also announced the acquisition of KALIGHT, which we have successfully closed on the 1st October. Last but not least, sustainability is, as you know, a very important focus area for us. We are therefore pleased and proud to have been named industry leader in the Dow Jones Sustainability Index for the 3rd time in a row. Let's now move to Slide 5, where we can see a snapshot of the financial performance of our growing profit engines. Our growing profit engines grew by 1% on a comparable basis despite the more challenging macro environment in various regions that I've just talked about. Our growth platforms, connected systems, IoT platform services, Horticulture, solar and LIFI continue to show a positive momentum. The adjusted EBITA margin of the growing profit engine increased by 80 basis points to 11% with each of the 3 business groups improving on their profitability. Let me now provide you with more details of each of our 3 growing profit engines starting on slide. 6 with LED. Comparable sales increased by 0.9%. LED lamps delivered a solid performance while we see price erosion slowing down on a sequential basis. On the other hand, LED electronics continued to be impacted by lower demand from OEM customers in most of the regions. The adjusted EBITA margin continued to improve with an increase of 30 basis points to 12.3%, mainly as a result of ongoing procurement savings. On the next slide, Slide 7. And you can see some of the business highlights of this quarter for LED. In the U. S. And India, we recently introduced our Wi Fi based smart home lighting This provide consumers with very easy to install smart lighting, which operates with the wiz connected ecosystem. Via the Wizz app. Another highlight is the launch of the new family of plug and play constant voltage drivers, So these drivers are very quick and easy to install as they can even be installed by non electricians. Let's move now to Slide 8 to talk about professional. Comparable sales increased by 1.7%. Mainly driven by solid performance in China and the Middle East, which was partly offset by a low level of market in India and in Europe, most notably in Germany. 3rd quarter performance benefited from solid execution of our order backlog and project pipeline, most notably in the Middle East and China. The adjusted EBITA margin improved by 60 basis points to 12.3% as procurement and indirect cost savings more than offset the negative impact of price and mix. There's a couple of business highlights that I would like bring to your attention on Slide 9. Let me start with Atia's leading lab in Stavanger in Norway. Where we combine our connected lighting technology with Cisco's network technology and transform the office into a showcase for the future. Our connected lighting allows employees to personalize the light above their desk, check meeting room occupancy, and find free desks and colleagues. It also allows them to tailor room temperature. Guests at the reception of Atya can use our Life Fi systems, to have a firsthand experience of high speed, reliable and secured wireless connection. We also installed our through Life Fi systems at the press center of Germans who got club HSV in Hamburg. Journalist in the press center of the Volkswagen stadium can file the stories using through LIFI. It solves the issue of wireless signal overload, helping reporters to stories and photographers to send through their pictures in a reliable, fast and highly secure way. Let's now turn to Slide 10. Home reported a decrease in comparable sales of 3.1%, While Europe continued to show good momentum, performance in the U. S. Was lower due to a strict application of our commercial policies. We made several investments and to prepare the launch of innovative offerings in Q4. The adjusted EBITA margin of minus 2.6% represents an improvement of 430 basis points compared with last year and shows a significant reduction of our breakeven points along the year. For home, we would also like to share a couple of business highlights, with you on Slide 11. In the third quarter, we introduced Phillips Hueplay HDMI sync box. This great innovation provides an easy way to synchronize all digital content with up to 10 Phillips Ulite. It's compatible with movies, TV shows and games, and it creates a fully immersive viewing experience. We also introduced the Phillips, hue smart plug. With this smart plug, any table or floor lamp can be turned into a hue controlled light. Let me now move to our cash engine lamps on Slide 12, comparable sales decreased by 25.5% due to the very high comparison base related to the halogen build band in Europe in Q3 2018. This decline is nevertheless lower than the market decline, resulting in continued market share gains. The adjusted EBITA margin remained solid at 19 point 4% as a result of ongoing indirect cost reduction. Next to our focus on organic growth, we also announced last week, that we have reached an agreement with Iton to acquire Cooper lighting solutions for USD 1,400,000,000 as you can see on Slide 13. This acquisition will expand our position in the attractive Northern American market and will result in increased innovation power and more competitive offerings. Through the transaction, we will improve our business mix with professional revenues increasing from 42% to 53 cents of our total revenues. The acquisition offers a substantial value creation potential including cost synergy potential we're saving of more than US60 $1,000,000 per year, to be largely achieved in the 1st 3 years. Mid teens EPS accretion in year 1 and a transaction ROIC that will exceed our WACC after year 1. So basically, this is what I wanted to cover, with you regarding the business and operational performance. I will now hand over to Stephan who will tell you more about the financial performance for the third quarter of 2019. Yes, Thank you, Eric, and good morning, everyone. So let's move now to Page 15 and look at the adjusted EBITDA bridge. As you can see here, the adjusted gross margin as a percentage of sales decreased by 120 basis points to 30 7.9% in the third quarter of 2019. And this is only due to the lower sales volume in lamps given the very high comparison base. When you look at the gross margin of the growing profit engine, actually it was stable in the third quarter compared to last year. The impact on the price on the overall gross margin was lower than in third quarter of last year. And as usual, we've been able to largely offset that negative price impact by the ongoing savings in our cost of goods sold. We've continued to take actions on our cost and the indirect cost base decreased by 1,000,000 compared with third quarter of 2018, taking out the impact of Forex. Finally, when we look at the FX impact and the prevailing spot rates at the end of September. We expect the currency impact on the adjusted EBITDA margin for the fourth quarter of 2019 to be around 20 basis point, positive 20 basis point. And therefore, for the whole year to be negative 30 basis point. Turning to Page 16. You can see the evolution of our indirect cost base. The initiatives that we have taken or continuing to take have resulted into a EUR 22,000,000 of currency comparable indirect cost savings in the 3rd quarter. And this is close to 5% reduction year on year. We had a negative impact of Forex on our cost base by EUR 6,000,000. We are quite satisfied with the evolution of the indirect cost base. We've done 1,000,000 of cost savings on a currency comparable basis in 2019 sorry, in 2018. And when you look at year to date, we are already at 1,000,000. We continue to execute many initiatives in order to further decrease our indirect cost base, and we expect to deliver again, a solid improvement in the indirect cost as a percentage of sales for the full year 2019. Let's now take a look at the working capital of the third quarter on Page 17. So when you compare with the same period of last year, you can see that the working capital decreased by 1,000,000 and reached 1,000,000 at the end of September. As a percentage of sales, this is a decrease of 70 basis points and our working cap represents 9.4% of sales, and that was mainly the results of lower receivable and also higher payables. The inventories on the right side increased by 130 basis points to 16.5 percent. As you know, our inventories are generally higher at the end of the third quarter to prepare for a seasonally strong 4th quarter. So the year on year increase in our inventory can be explained by higher inventories in home and also in Europe, which are partly offset by improved inventory levels in the Americas. Finally, let's take a look at our cash and debt position in the following slide. Our net debt decreased by EUR 8,000,000 compared to the level at the end of June. So, of course, we generated of profit in our cash and therefore, our debt position. Our net CapEx was EUR 8,000,000 in the quarter, And the net change in provision was EUR 23,000,000. Next to that, we paid for tax and interest an amount of EUR 28,000,000. The other bucket on the right of EUR 38,000,000 is higher than what it used to be in previous years because it now includes the new lease liabilities following the applications of IFRS 16 and is also here the FX impact on cash, cash equivalent and debt. All in all, our net debt position amounted to EUR 857,000,000 at the end of the third quarter and that includes the lease liability as per IFRS 16 that is applied since January 2019. Let me now hand back to Eric for the final part of the presentation. Thank you, Stephan. Let's go to the outlook on Slide 20. Due to the challenging macro environment that we are currently facing, we have revised our outlook for 2019. We remain confident that we will be able to improve the adjusted EBITDA margin for 2019. However, somewhat less than the ambitious level we had said previously, we now expect the adjusted EBITA to be in the range of 10.3% to 10.6% for 2019. As it comes to sales, we expect the CSD of the growing profit engines to be flat. The CSD of the business group plans is expected to decline towards the higher end of the previously indicated range of -21 percent to -24 percent. In other words, closer to minus 21%. And lastly, we confirm that our free cash flow, excluding the positive impact of IRS IFRS 16 is expected to be above 5% of sales. With that, I would like now to open the call for question, which Stefan and myself, I'm happy to answer. You. And our first question comes from the line of Lucy Carrier from Morgan Stanley. Please go ahead, Lucy. Your line is open. Good morning gentlemen and thanks for taking my question. I'll go one at a time. The first one, Eric, Stefan, maybe can I ask a bit of a question? But the new guidance you are giving on adjusted EBITDA is substantially below the one you had before and even the low end of the previous guidance is not even embedded in the new one. Can I ask what has changed really over the last few months that kind of triggered this outlook in I guess what I'm trying to understand is what has been really the variation versus your expectation in which division have you seen really the biggest shortfall? So that's my first question. Yes, good morning, Lucy. So effectively, we've seen worsening of the end market situation in Q3 and with all the discussion we have on a regular basis with our market. And specifically when we did the forecast for the upcoming quarter in Q4, we don't think and that there will be a sufficient improvement of that situation So we maintain the original guidance. In July, we thought that we were entering H2 with the most with a more favorable base of comparison on many businesses. We had stated at the time Q3 would be more favorable for LED and Q4 will be more favorable for professional, which is mathematically the case. But we've seen most notably in Germany, which is a very important market for us. And something that was not at all expected when we did our Q2 announcements, is the situation in India where we have been facing a situation of basically tightening of liquidity. Now we are not the only company that is facing that situation. You can hear that from many other people. And that situation is really impacting us in Q3. And we believe it is going to impact us until probably the mid of next year. That's what the economic analysts are saying at this point in time. So if you take a bit of distance India for us, it's a country in the top 5. I think in our new report, you will find that we invoice 1,000,000 last year. So it's an important market for us where we are leading powerhouse and we didn't at all expected the situation that we are facing and that we believe will continue over the upcoming quarters. So that situation is not allowing us to grow at the expected levels. When you don't grow at the expected levels, you can always try and adapt on the rest of the P and L, which is what we're trying to do. But we don't think that we're going to be capable to do it, to be in line, at least with the 11% which was the lower level of the guidance that we gave at the time of the IPO and that we confirmed systematically over the past over the past 4 years. Now the good news is still that within a challenging market conditions that have been we're sending all along the year. We still believe and confirm that we're going to be able to further improve on our operating margins by 30 to 60 basis points for the full year. So this is basically the story you see. Thank you very much. My second question was on the home business. Can you maybe explain how we should think about this business? Because to me, the growth seems to be still a little bit disappointing, especially considering you had a negative comp last year. And of course, it's still not really profitable. So is that that you're seeing more competition or do you see more pricing pressure? And in your comments, I around the division, you've mentioned that you had done in the U. S. The strict application of your commercial policies. So what is precisely going on here, please? I would agree with you saying that the growth is disappointing. The P and L situation is satisfactory. So let me explain. Yes, we were expecting more growth. And in the U S, we had to have a stricter application and a very strict application of our commercial policy, we were asked to abide by some conditions that we didn't accept from a commercial standpoint. So let me give you a hint. Price matching, guarantee of 100% return for the full 1st year of introduction of new offers. In some cases, even, margin guarantee for the retailers. So these are things that we do not do. And when we refused these conditions, we were not listed as expected in some of our retailers. Now I see this as a short term issue. We need also to mass very clearly the boundaries of how we want to operate. And when I'm talking about that, it is more specifically in Northern America. Because that business has continued to be very strong in Europe. When you look at the P and L, and this is what is also interesting. You look at our P and L in the past three quarters, we're basically achieving a similar top line revenue, but our bottom line has systematically improved, meaning that we have lowered the breakeven points all along the year. And I think the situation of the P and L in Q3, even if we are still negative from a bottom line perspective, is very well oriented. You know that Q4 is the big quarter for that business. We have released a lot of very exciting innovations. Some of, I've commented previously So, we are very excited about the potential that we have in Q4 for that business. Thank you. Our next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead. Your line is now open. Hi, good morning. Thanks for taking my questions. So the first question I want to ask sort of ties back with the prior comment around margin, you had the medium term ambition, which then was 19% of 11% to 13%. 2019, obviously, you've just commented on what you are seeing, but Would you say that sort of medium term 11% to 13% is still sort of the level that you're where your ambition lies or has anything sort of structurally changed in the industry or your own understanding of the margins that you can do medium term? Daniela, good morning. Nothing has structurally changed. I think we are facing challenging market condition at this point in time. We will indicate further where we see the company going, but we don't see the company stopping where it is now from an operating margin standpoint. I think we can structurally do, do more in the future. So the 11 to 13 sort of remains Is that the way to read what you just said? No, I'm not saying that I'm saying that in due time, we will set a new ambition for the future. And we haven't decided yet what it's going to be. That's why it cannot answer positively to you. But directionally, it will be pretty much in line with what we had said previously. Got it. Thank you. And then just one for a quick follow-up because I think when you did the Cooper lighting call, I'm not I don't think we've discussed sort of any charges or one off that you would have to incur towards that sort of in the preparation for that. But when we think about forecasting 2020 free cash flow and even Q4 free cash flow. Is there anything that we should be aware of in terms of charges that you will incur leading up to the deal? Yes, Daniel, this is Stefan. So Yes, when it comes to the overall cost related to the acquisition and also the integration and the synergies, That's something which we are working on. Of course, we have some high level estimates, but as we are getting, and working towards closing we'll get a better view and at the point of time, we'll share that. With respect to a short term impact than Q4, for example, on free cash flow, because we're still going to be between signing and closing. There will be some costs, but they will be limited and much more transaction related costs than integration related costs or agreement cost by definition because we won't be able to do that. Leading into 2020, of course, it will be more the case, but then we will communicate at that point of time. Thank you. Thank you. Our next question comes from the line of Leo Carrington from Credit Suisse. Please go ahead, Leo. Your line is open. Thank you. Good morning. On the on topic of recent acquisitions, with KLights deal now closed, can you can you disclose any additional financial details or observations from that business itself and also how much you expect to pay for us in terms of total consideration? Yes. So on, on on K Lite, we gave some indications regarding the financials. Of that business, meaning revenues, level of profitability. So that's something which was communicated in, in July, when we announced the signing We haven't given the details of the amount paid. And, what we said in July that this is a private transaction with private owners. And in the agreement that we have with them, we cannot disclose the exact price. So you will see in Q4 in our free cash flow because we closed in October an amount related to that. But we won't be able to disclose the specific price. It's going to be more, yes, impacting in the fourth quarter. For the rest, we'll provide you maybe on the on the cycle, the details on the financials of the entity itself. That's something which we gave in July. Yes, understood. Thank you. And a quick follow-up on Lucy's question. In home, what factors drove the better performance in Europe versus the U S? Is it just this dynamic of you enforcing your commercial terms in the US versus perhaps those being easier to to to to hold in Europe, or is there is there something else It probably has to do with the market structure, I think, in in Europe, we have many different go to markets and smaller markets. So basically, you are putting less eggs in the same basket. If I can use that expression, which is a bit different in the U. S, where you have major retailers in front of you. So when things are working fine, well, you get a boost in terms of top line. When you have some adjustments, you may have the counter effect of that very powerful to the market. So we've been also in Northern America diversifying our access to market, but we but it's still fairly concentrated. Thank you. Our next question comes from the line of Martin Wilkie from Citi. Please go ahead. Your line is now open. Thank you. Yes, it's Martin from Citi. So the first question is around the cost savings. And just to clarify, your comment that the change in margin guidance was really an end market driven piece mostly on indirect cost below 29% of sales for the quarter, but I think on a trailing 12 month basis, you see a little bit above it. And just to clarify that you still think you can get that number below 29% for the year and therefore the cost savings are on track. That's my first question. Martin, I don't think we gave a specific indications of where we're going to be in terms of cost as a percentage of sales for the year. So I won't be able to give you more details there. I guess your question is a bit more general on whether we see the potential to continue to reduce our cost. And whether we believe we can reach a percentage of sales that is below 29%. And here, the answer is yes. We are continuing to take a number of actions. Of course, 2018 was a very big year in terms of the amount of cost that we've been able to take out. As you look at the following year, First, you have a lower base by definition because you've already taken out quite a lot. Number 2, you have, at the beginning, the impact of the carryover effect of what you've done during the year 2018. And then you start to see the impact of what has happened beginning of 2019 and in the course of 2019, which is now what we see. There is much more limited than there be much more limited impact of what we did in 2018 in Q3 and of course in Q4 as well. But what we what you see now is all the actions that we have taken and that we continue to take. So yes, the potential stays pretty substantial. And we'll continue to do it in Q4 and in 2020 and we have a number of actions so that we end up at a level that will be lower than 29% I'm not going to comment whether it's full year 2019 or slightly thereafter. Okay, thank you. And then just a separate question on LED even also you saw, positive comparable sales growth this quarter having been negative for the last couple of quarters. Is that just the base of comparison effect, I mean, we can try to estimate what is sequentially, but just to understand, sequentially, did this LED improve, or is that is that better comparable sales growth just simply a sort of base of comparison effect? And if you could sort of split that between both the lamps and the the electronics part of it? Thank you. Yes. Good morning Martin for sure. Yes, the comparison base helps and to understand the performance for Q3, as we had originally said. When you look at the two businesses, we have a good traction on LED lamps. And we have lower performance on LED electronics, which is also going in sync with the fact that we see the Luminess business slowing down. So we sell LED electronics to other, Lumina manufacturers. We call them the OEMs, and we see less business coming from these OEMs because they are themselves selling less. So if you look at the two businesses that are making the LED business look today. It's a good traction on LED lamps and is a slowdown in LED electronics. Okay. Thank you very much. Thank you. Our next question comes from the line of Mark Kesselink from ING. Please go ahead. Your line is open. Yes, thanks for taking the questions. I would like to look a little bit at the LEMS division. So clearly, I think as expected, the decline was a bit higher in this quarter. But for the year, you're still running at 21%. So for the quarter to come and also maybe looking at into next year, the impact of the Hallogain brand, will this completely fade away in the coming quarters or is that something that goes on for still a few quarters? Not the impact of the halogen ban impacted us last year in Q3, mainly and partially in Q4. So we're going to have to face this base of comparison, well, we faced it in Q3, and you've seen the result with minus 25.5 percent of CSG, which is much lower than what we experienced previously, but we knew that. They're going to be somewhat a remaining effect in Q4, but it's going to be much less than in Q3. And after that, it's going back to a normal situation. The only thing that we don't know yet because has been confirmed is if and when a halogen ban would happen in Northern America. It has happened already in Europe. Normally, Northern America follows, but we have no information of when that could be. But if ever it happens, once again, halogen is not the technology where we are the most involved, then we would be totally, capable to face another ban of halogen whenever it happens and in the same shape and form than what we've been able to do for the Europe case. Clearly. And maybe then to be 100% sure from from my side, if if you say that, the expected decline, if the pace will be at the higher end of the range 20 minus 24 to minus 21. Is that in the higher end that that minus 24% level or? No, it's -21 because arithmetic is -21 is higher than -24. So it's been a big debate internally on how we would phrase that. So, but that's why, you know, in my introductory speech, I highlighted minus 21. Okay, okay. That's okay. And then the other question is on India. And so now the 2nd quarter that was impacting you, how do you see that, recovering going forward? Because I think, like, structurally, it's still probably a very promising market, but how should we face that? In the midterm and long term, there's absolutely no question. This is a very very promising market and market where we are extremely well positioned. Once again, I don't see at this point in time any recovery before mid next year, mid 2020, at least this is what the analyst is saying. Maybe we're speaking from a conservative position today because we thought that India have Q2 would recover. It has not happened. And this situation at this point in time, which is about basically tightening of liquidity is a complex situation because it's hampering the economical actors on that market and time to recover. Is always slow in these cases. So we don't see an improvement in Q4, and we believe that it will not dramatically improve before mid-twenty 20. Thank you. Our next question comes from the line of Wim Hurlough from ABN AMRO. Please go ahead. Your line is open. Yes. Good morning. I would like to go back to the home division. You basically, alluded to the fact that you did not accept the commercial margins or the commercial terms of the US Retailers or some of them. And as a consequence, you were not lined up in the 3rd quarter for basically their sales. Yet you are relatively optimistic, I would say, for your let's say, capabilities for the fourth quarter going into the holiday selling season, you also have inventories being build up in preparation for that. So how should we look at those discussions around the commercial terms? Have they the the retail has come around and now you're back on the shelves or how should I look into that? That would be my first question. And the second one is on KLIGHT. You highlighted you see a cash out in the 4th quarter. Is this going to be the only cash out or will there also be an earn out at a later stage? Thanks. I will take the first question and then we'll let Stephane take the second one. I think that's a very, very good and important question that you ask about that dynamic. So we're basically what happened in Q3 happened in Q3, we continue negotiating or we also have different access to the market. So if we cannot go through 1, we cannot go we can go through another one. But when it happens, during the quarter, it's more difficult to recover and to reposition the offer on other channels. Now we've worked in Q4 in order to improve further our go to market, and I think we have achieved that. While at the same time, what makes me confident for Q4 is the amount of innovation that we are bringing to the market. And I'm going to talk about the Phillips hue offer and picture what we're bringing to the market in Q4. Bringing to the market in Q4, improved ranges with the Bluetooth capability on ranges like HUGO, which was a star range in the family. We're bringing filament plants that are going to be collectible under the hue system. We're bringing smart plugs. We're bringing smart switches. We're also bringing, a totally revolutionary HDMI smart box where basically you connect all your content, video streaming, gaming to that box, then back to the TV, And that then that box synchronizes your digital viewing content with the lights you have in, in your house. So at the end of the day, we're bringing a lot of very exciting innovation to the market. And those innovations have a direct impact on growing the market and allowing us to grow. At the same time, it is the biggest quarter in the year, we are ready from an inventory standpoint. So we expect to have a very, very fruitful and very engaging Q4 season. So this is why we are comfortable. And on the go to market, you know, what could not do in Q4, we'll find different ways to go the in Q3, sorry, we'll find different ways to make it happen in Q4. So to to summarize yeah? Yeah. Sorry. Go on. Yeah. To summarize, on the one hand, you have tried to diversify basically the number of channels that you are able to sell in, yet on the other hand, given the commercial lineup that you have with all the products that you're bringing to the market, you're bringing sufficient leverage to basically get back on the shelves with that particular retailer where you were temporarily kicked off. Is is that the way to summarize it? Or others. So Wim, on the on the KA light question, so there is no earnout. And almost all the payment is done. Up front. There is a little bit that is kept in escrow that will be cashed out 1 year from now. But it's a small part. Very helpful. And then a final question from my end also related to the home question. We see the momentum in the United States being relatively negative with comparable sales growth minus 10% for the 3rd quarter. It was minus 8 and minus 2 in, in Q2 and Q1, respectively. So what is driving this negative momentum? Is it fully attributable to the issues that you the temporary issues that you have in in the home division, or is it also that you see, let's say, weakening momentum in the United States and the other divisions? No, it is attributable to 3 business groups and all business units. It's lamps, the conventional lamps, which have declined substantially in Q3, in Northern America. It's LED electronics. I've commented it previously. So we've seen our OEMs buying less and it's home that we have just commented now. Thank you very much. Thank you. Our next question comes from the line of Joseph Su from Redburn. Please go ahead. Your line is open. Hello, Eric and Stefan. Thank you for taking my questions. I have one for Home Division and the other one for Professional. First, on home, you mentioned about this to me, it's a retailer destocking issue. And the large U. S. Retailers demands on the change to your commercial policies, Are they mainly focused on your new products or existing products? And have you seen this happened before? And also, what do you see in terms of the sellout of those retailers compared to relative to tracking issue? And lastly, if I can try, and how much of your revenue is attributed to these large U. S. Retailers in the U. S? And I will give my second question after this. Yes, good morning, Joseph. We don't indicate specifically the revenue, which is going through these retailers in the U. S. Nevertheless, the demands are focused on the new, but also on the normal line of business on the new we had a demand of 100 percent return for a full year for all the new offers. So we have the specific demand that only touches the new offers. Otherwise, the rest was pretty much you know, all the business that we do with them. When we look at the selling out, the selling out has lowered compared to what it was in the previous years when it comes to smart home lighting in general. And this is linked to the fact that, there's a lot of positive traction on smart home at large. When we started, lighting was one of the first element that people were actually buying in the smart home. Now you have many opportunities to buy a lot of different things. And when you look at the selling out of the smart home lighting. It is below the average of the selling out of smart home at those retailers. And so we're experiencing the same thing when it comes Can you give us some color on your system and services sales in the quarter and also year to date? And also, if we look at market as whole, and can you give us some color on the penetration of system and service spire region U. S. Versus Europe versus the rest of the world? So when it comes to systems and services, we see a penetration, which is pretty strong in all the regions. The promises of, smart systems is energy Efficiency which is higher than we when we only do the technological change of moving from conventional to LED, but also other collateral benefits. So we see a lot of traction worldwide. We don't give any specific elements on a quarterly basis. We will do that at the end of the year as we do normally. But we are pretty much happy on how our offers are being developed. You know that it's not only systems, but it is also our IoT platform interact where we are gathering data and trying to monetize this data. So this is a part of the business, which is moving on with more and more customers being at, I would say, the right level of education, to understand the benefits beyond quality of light and beyond energy efficiency. Well, we see also a very, very good traction is on our new growth platform, namely, horticulture and animal lighting It's 3 d printing. It's also solar or LIFI where we start to have more and more interesting applications that can be derived from that technology. I was talking about this Hambook Stadium, which is a very interesting one because when you are in a stadium, everything is congested, the wife because there are too many people. So the Wi Fi is congested in or even if you try your 4G connection, it's going to be very difficult to sand important files and heavy files. And with the LIFI, Since we have a reliable, stable, a very fast network, another report that I capable to, to make it happen during the matches. So All these things are new application that we discover, you know, while working. And, well, I think we've made the right investments for the future. These businesses are for some of them medium sized, for some of them small, but with a very strong positive momentum. Sorry. And just on the installed base penetration of system and services, can you give us, I mean, some kind of a color as to whether U. S. Is higher versus this year or the other way around and what is the difference in material? What we see is that in general, where we have a high market share, our penetration is strong. But from a trend perspective, I would tell you that I see all the market trending well. We are very successful in some of the big markets in Europe. We're very successful in India. We start now to have a lot of success in China. We see also a Middle East after the difficult period that we experience because of the market slowdown. Now we have a lot of traction on connected street lights. So it's pretty much happening all over the world. Thank you. Our next question comes from the line of Tanoj Mokija from the Bank of America. Please go ahead. Your line is now open. Hi, thank you for taking my question. I have a question on SignifAI's India operations. My channel checks with Indian LED manufacturers and retailers suggest that Phillips has cut LED prices by 15% in India to push volumes. So can you please provide some color on SignifAI's pricing and sales strategy for India operations? I happened to have it in India not so long ago, and we're extremely well connected to the team there. If you go on the market and you look at the prices, I don't think that you will see us as the lower price on that market. I think we still have a brand premium because of the quality that we deliver because of the width of wallet. Our strategy is a strategy that we have everywhere innovate in order to be able to grow the market size and bring a higher level of involvement to our consumers. In India, we are also deploying the hue offer. And we are also recently launching our Wi Fi with offers. So as you can see, our strategy in India is pretty much in line with what we do everywhere, which is innovate to create more value. Interesting. If I can ask just one follow-up question, what's your opinion on LED prices in the Indian industry overall? Do you think we are at the bottom of pricing erosion or is there still some scope of price correction of LEDs in India? That's a very important question. I think you can you can move it up to a larger territory than only India. I think what is important, it's not only the price of the products. It's whether the manufacturers of these products are, at this point in time, making money. And if you ask me I see a lot of actors on the LED lamps because we talk about the LED lamps business. Many actors from Asia. I think there are new actors also coming from India. At the end of the day, you run a business only profitable. There are many actors, many of them are not profitable. We think that the market will have to shake out in the future. From a technology perspective, we are entering the phase where there's much less cost that we can extract from technology. Now there are always other possibilities and alternative possibilities that on our side, we will never go to, I can give you examples where people could use recycled materials. So recycled metals, recycled plastics, something that we would never do because we know that at one stage or another, they will crack. People can also decide to overdrive the LEDs, which we do not do because we believe that it hampers the lifetime of the product, but also the quality of light. So there are many things that can be done to further try and decrease the price of LEDs but these things are going at the opposite direction of quality So these are things that we don't do because we don't believe that it serves the market in any way. And I don't think that it gets customer acceptance in the longer run. We see customers coming back to us telling us that they bought LEDs that were lasting only for 8 to 9 months, then the color is changing and they ask us why. And there are a lot of explanations for that. So could they be actors tempted to go for low quality because at the end of the day, building a land, which is made of electronics is not that complicated. That's possible. There may be many of them, not many are making money, so they will go at one stage. And I don't think it's a longer term trend since the quality is not there. Thank you. And as we're now approaching the end of the call, we will now take our last question from the line of Akash Gupta from JPMorgan. Please go ahead. Your line is now open. Yeah, hi, good morning, Eric and Stefan. I had only one question regarding pricing in the bridge. So at $69,000,000 negative, it was higher than the level we had seen in first half of the year. So maybe if you can talk about Is there something we should read into it? Or is this just pure mechanical driven by segment mix? And also if you can update on update us on where do you stand in your negotiation with a respectable of materials and some of the component cost? Yes, sure. So yes, $69,000,000, when you look at the absolute value, you're right. When you compare Q11 and Q2, we were closer to 57,000,001,000,000. And when you go back in time, of course, the amount were substantially higher, when you apply that to the overall value of revenues in percentage, you actually see, overall an improvement So, Q3 this year, the EUR 69,000,000 equivalents to minus 3.8 percent price reduction. If you look at last year, it was minus 4%. If you look year to date, for the 1st 3 quarters, the price reduction is minus 3.6%. Last year, it was minus 4.7%. So what we've said now for about 6 to 7 quarters is continuing, which is a slowdown of the price reduction. Now then from 1 quarter to the other, it can be slightly different, but the trend is still there, and we still see a slowdown, especially in LED and in deadlamps, in particular, but also across a number of other businesses a slowdown of the price reduction. So and this is what the numbers reflect okay, absolute value can be a bit higher because we have higher sales, but the percentages are generally better. So that's, that's how we see it. Thank you very much. And I would like to return the conference To the speakers. Okay. Thank you, Sarah. 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 do not hesitate to contact the IR team. And again, thank you very much, and enjoy the rest of the day. This now concludes our conference. Thank you all for attending. You may now disconnect.