Earnings Call: Q4 2018

Feb 1, 2019

Okay. Mr. Nelson, I think your line might be on mute. Thank you. Thank you. I'll start. Good morning, everyone, and welcome to the SignifAI earnings call for the fourth quarter full year 2018 results. With me are Eric Rondola, CEO of SignifAI and Stephane Roger, CFO. In a moment, Eric will start with a welcoming introduction, after which Stephane will take you through the fourth quarter financial performance. As usual, Eric will then tell you more about the highlights for full year and we'll end today's presentation with the outlook and conclusion. 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. All documents are now available for download from our Investor Relations website. A full transcript of this conference call 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, everyone, and thank you for joining us today. I propose that we go straight to Slide 4. So first, I am pleased with the solid progress we've made on the transition from conventional to LED and Connected lighting systems and services. In 2018, our LED based sales grew by 2.5% on a comparable basis to 71% of sales, and our installed base of connected light points increased from $30,000,000 at the end of 20.17 to $44,000,000 at the end of 2018. We delivered on our financial objective to achieve a margin within the range of 10% to 10.5% in 2018. Our adjusted EBITA margin improved by 50 basis points to 10.1 percent, which includes a negative currency impact of 50 basis points. This margin improvement on the back of a declining top line clearly reflects our relentless efforts to simplify with the organization and reduce our indirect cost base. Our adjusted indirect cost decreased by 1,000,000 on a currency comparable basis, which is a reduction of about 10%. In line with our outlook, we generated a solid free cash flow of 1,000,000. Last year's free cash flow of 1,000,000 included both a net real estate gains of 1000000 and 1000000 lower restructuring cash out. In 2018, we returned 1000000 to our shareholders through dividend and share repurchases. When including the proposed dividend for 2018, we would have returned 1,000,000,000 to shareholders since our IPO in May 2016. As you know, sustainability is going to be my next point and he's at the center of what we do. And we are very pleased with the progress we've made towards achieving on our sustainability targets for 2020. For example, we target to become neutral in 2020. We reduced our CO2 emissions by 43% in 2018, and we are now carbon neutral in line of our markets. One market conditions are challenging, and we continue to focus on new growth platforms to strengthen our market leadership and progressively improve our growth profile. And we are initiating additional concrete actions to further simplify and optimize our costs. All in all, we are confident to have built a solid foundation to deliver in 2019 on medium term financial targets that was set at the time of the IPO. Let me now go to Slide number 5. It is a very important slide for us. So today's SignifAI is the leader in LED lighting and in connected lighting systems and services. We have been building this new worldwide leader focusing on growing profit engines, in line with our strategy to move to LED and connectivity, developing new growth platforms and creating new systems and services business models. As you can see on the slide, already 77% of our sales in 2018 came from our growing profit engines, which also have improved their adjusted EBITDA margin by 500 basis points to 8.6 percent since 2015. They now contribute to 66% to the profit versus 31% by in 2015. On the other hand, our cash engine, namely the lands business groups, increased its leadership, optimizing cash to fund growth. Let me now hand over to Stephan, who will tell you more about the financial performance for our fourth quarter into 2018. Yes. Thank you, Eric, and good morning, everyone. Let's now move to Slide 7. And here, you can see a snapshot of our Q4 2018 financial performance for what Eric has just described, which are our 3 growing profit engine. So when you look at the performance of the growing profit engines in Q4, it reflects and improved top line performance in SE compared to the third quarter. While at the same time, professional and home suffered from a high comparison base in the fourth quarter of 2017. Compared to the end of 2017, we clearly saw a deterioration of the market conditions in various regions and most notably in China and in Europe. However, you can see in the last column that looking at the profitability, for ADD, we were able to deliver a significant improvement of its margin, which now 14.4%, while professional loan and home were able to maintain strong margin, relatively close to the level of the fourth quarter of 2017, despite lower sales. Altogether, our growing profit engine delivered an adjusted EBITDA margin of 12.4% And this is an increase of 100 and 40 basis points compared to last year. And this is also despite negative currency headwinds. Let me give you a bit more details for each of the business groups. Starting on Slide 8 with LED. As you can see here, our comparable sales increased by 0.2% in the 4th quarter compared to last year. This is a sequential improvement And this is due to LED lamps where the volumes continued to grow. And we saw also the price erosion slowing down. Our LED electronic business sustained its positive comparable sales trend. Looking at the margin, the adjusted EBITDA margin by 4 60 basis points, reaching 14.4 percent, mainly as a result of indirect cost savings. Turning to next page, slide 9. You can see here some of the business highlights of this quarter for LED. Let me highlight one of them on the glass filament, a decorative range expansion on the left hand side of the slide. This is our new range of decorative LED glass filament bulbs. They capitalize on the trend for vintage style bulbs, which we see everywhere. And they come in very classic shapes and they come under premium, which of course is great for our pricing and profitability. They use the latest LED technology and they are around 80% more energy efficient than the conventional light bulb and they last ten times longer. On the on the LED electronic side, we have launched a new emergency driver solution in Europe And this is a driver that is designed to secure light in case the normal main voltage is failing. And in that case, the driver immediately switches to battery mode in order to light up retail objects, for example, escape routes. Let's now move to BIGI ProF on Slide 10. Here, as you can see, the comparable sales declined by 6 0.9%. We all remember that the fourth quarter of 2017 was a very high comparison base, and the growth last year was 10.4%, which reflected at that point of time, a strong market activity in various regions and also as you remember, a large scale project in the U. S. In the fourth quarter of 2018, we experienced market conditions that were more degraded compared to the end of 2017 as we have commented along the year. And most notably in China and in Europe more recently. The adjusted EBITDA margin remains solid at 12%, which is almost the same level as the fourth quarter of 2017 as the indirect cost savings largely offset the impact from lower sales volumes Turning here to the business highlights for our professional activity on Slide 11. For example, this quarter, we completed our largest ever connected architecture or lighting project This is a massive project for the Shanghai Municipality, which involves dynamically lighting the Saite iconic waterfronts, which 3 bridges and over 40 buildings in the financial and tourist districts. We installed more than 50,000 connected light points, along a 1 point 2 kilometer stretch of the waterfront in Shanghai. This new lighting is expected to save the city between sea 60% to 70% of its annual lighting cost when compared to the previous area that was led by conventional lighting. Our indirect landmark software is being used to control and manage delight on the building rooftops and also on the 3 bridges. The scale and the sophistication of this project illustrates our leadership as we are able to unlock the potential of connected lighting to transform cities and help them also be more energy efficient. Let me now turn to Page 12. Home, our home business here reported a decline in comparable sales of -2.6 percent. This was mainly due to the very high comparison base of the fourth quarter of 2017, as the retail partners that we have in the US started to build up inventories in the second half of twenty seventeen. As you know, we've taken a number of corrective actions in 2018. And therefore, the performance of our home business has now returned to more normalized level. You can see that from a profitability standpoint, with the solid level of sales in the 4 quarter and all the actions that we have taken, Home has been able to return to profitability in the 4th quarter and delivered an adjusted EBITDA margin of 8 0.9%, which is very close to the level that was achieved 1 year ago. So home is back on track And I would like here also to highlight a couple of business achievements of the fourth quarter that you can see here on slide 13. Earlier in the year, you remember that we launched a new range for Phillips a few outdoor linear and light strips. In order to extend the engines of Phillips you from inside to the people's garden earlier this month, at CES in Las Vegas, we built further on this success and we announced many additions to the Outdoor range, including a variety of wall mounted outdoor fixtures and path lighting as well, and also the battery operated phillip's new outdoor sensor and with this new sensor, we can welcome you into your home with light as you approach. Moving on to LEMS, which we call our cash engine, you can see on Slide 14 that this business being the world leader in conventional lighting enables us to leverage the strong commercial synergies that we have in branch coverage and customer reach with all the other businesses within SignifAI. As a cash engine, Lambs continue to deliver on its last month standing strategy. And this resulted in further market share gains in the fourth quarter 2018 and a strong free cash flow generation for the whole year that reached 1,000,000. As a percentage of sales, free cash flow was stable at 22% when excluding the real estate policy that we had in 2017 and also, as you can see, some higher restructuring cash out during the year. Let's turn to Slide 15 and take a look at the adjusted EBITDA bridge. As you can see here, the adjusted gross margin for the group a percentage of sales decreased by 120 basis points in the 4th quarter compared to last year. This was mainly due to a negative currency effect of 50 basis points and also the impact of the high comparison base of last year. The negative Forex impact was mainly caused by adverse swings in emerging market currencies that we have seen around the year. Like the rupee in Indonesia, the Brazilian real, the Argentinean peso also the rupee in India. You can see also that the impact of price on the gross margin continues to be largely offset by the savings that we've been able to pain on the cost of goods sold. And we have also benefited like previous quarters from the strong reduction of our indirect cost and I have more details about all the initiatives that we have taken. Let's now take a look at the working capital on fourth quarter of 2018. So when you compare with the same period of last year, we actually continued to decrease our working capital by EUR 61,000,000. And at the end of the year, our working cap was EUR 536,000,000. This is 8 point 4% of sales. And this is even lower than the level that we reach at the end of 2017. So that is a very strong performance on the working capital side. And the improvement was mainly driven by the lower receivable. When you look at the inventories, they were 50 basis points higher as a percentage of sales compared to the end of 2017. And this is mostly due to the negative impact of currency movements. Finally, let's take a look at the evolution of our net debt. You can see here on Slide 17 that the net debt of the company decreased by 100 and 1,000,000 compared to the end of the third quarter. This is mainly due to the free cash flow that we generated during the quarter. Which was partly used to repurchase the shares and complete our program. And during the quarter, we bought 5,000,000 of shares. Next to the profit that we generated in the quarter and also the decrease in the working cap, which I just mentioned, you can see some other elements in the bridge that affected our free cash flow. The net CapEx was 1,000,000 and also the net change in provision was 1,000,000. Next to that, we paid 1,000,000 of tax and interest. All in all, that allowed us to decrease our net debt position to 1,000,000 at the end of 2018 compared to the end of September 2018. Let me now hand back to Eric for the highlights on the full year and the outlook. Thank you, Stephan. Let's turn to Slide 19. So as you can see, our comparable sales growth of our growing profit engines combined was minus 0.4%. Which is on the back of a high comparison base, deteriorating market conditions in various regions, and the non anticipated temporary decline in home. Profitability of our growing profit engine increased by 320 basis points over the last 2 years into 'eighteen profitability increased by 30 basis points despite the negative impact of home of about 100 basis points and a negative impact from currency movements. The growing profit engines as we call them already generates a large free cash flow. As you can see in the graph on the right side, free cash flow generation continued to increase in 2018 despite the non anticipated negative free cash flow from home. Let me tell you more So we are investing heavily in the fast growing areas of horticulture, solar and LIFI as these areas all contribute significantly to a more energy efficient usage of electricity enhanced strongly support our company's contribution to realizing a more sustainable world. Let me start with Horticulture. Growers can benefit from our customer centric approach in which knowledge from the plant specialist, account manager and application engineer are combined to offer the customer the best service and their benefit, of course, from our market leading products and light recipes. The business results improve as our lights provide growers with better growth predictability higher crop quality and higher yields. This market is projected to grow by more than 20% per year until 2025. One of our main highlights in Oticulture in 2018 was the expansion at Agua Invest in Russia, where after the successful installation of phase 1, our customer decided to expand from the equivalent size of 40 to 100 soccer pitches. We also see I also see great opportunities in solar. Let's have clear in our mind that there are still more than 1,000,000,000 people who do not have access to the electricity grid. Solar Power lighting provides this access showcasing the vast potential of this market. Solar is a safe and sustainable alternative to currently use fuel based resources both in the professional and in the consumer markets. The market for solar lighting is expected to grow by 20% per year until 2024. In 2018, we sold more than 300,000 solar lights which approximately 55,000 are related to road lighting. The last growth area I want to highlight is LIFI. In 2018, we were the 1st major lighting company to LIFI enable some of our existing luminaries As you know, LIFI provide an extra layer of security versus solution that are based on radio waves, as it is based online of site. The bandwidth is more than 1000 times the size of the radio spectrum used by Y Fi. So it can connect many smart devices and multiple users. User job life is ideal in radio frequency steve areas like hospitals, clinics, factories and schools, or area with poor or no Wi Fi connection at all, like for instance, multi tenancy building. We see a very healthy appetite, for Life Sciences, which is reflected in the fact that since our first pilot with ECAD in France in the first half of twenty eighteen, we now have more than 30 pilots in all corners of sales growth and adjusted EBITA margin for our growing profit engines and also for our cash engine. So let me give a few comments. In LED, we had a comparable sales growth for the full year of 0.4%. An improving top line in LED electronics was offset by the non anticipated decline in LED lamps. The adjusted EBITL margin improved by 180 basis points to 11.7%. This was mainly driven by procurement savings and indirect cost savings. In Professional, sales declined by 0.4% on a comparable basis. This was mainly due to deteriorating market conditions in various regions, especially in the second half of the year that we talked about earlier. The adjusted EBIT MRG and in professional proved by 120 basis points, mainly driven by lower indirect costs. In Home, We had a comparable sales decline of 3.8 percent in 2018 given the inventory built up at our trade partner in the USA, the adjusted EBITA margin of minus 8.1 percent mainly reflects the non anticipated temporary sales decline, which consequently led to under absorption of the fixed cost base. In the course of 2018, a set of actions was taken in home to improve performance which started to deliver results in the second half of twenty eighteen. And as Stephane mentioned, return to performance to normalized levels in home at the end of the year and very specifically in Q4. On the other hand, our cash engine Lance continues to deliver on its last month standing strategy, which resulted in further market share gains and a free cash flow of 1,000,000. Let me now move to slide 22 where we can see and you can see the evolution of our indirect cost savings. We are executing on a multiyear transformation program to simplify the organization. In full year 2018, we lowered our indirect cost base by 1,000,000 on a currency comparable basis, which is a decline of 10% or 180 basis points of sales. As a result, the adjusted indirect cost base decreased by 170 basis points to 29.8 percent of sales, keeping the company well on track to further improve the adjusted indirect cost base. The significant reduction of our indirect cost base into 2018 was mainly the result of the transformation initiatives that we explained to you, we were implementing. For example, we reduced the non manufacturing workforce by 10% through simplification of the organization, which also resulted in 80% reduction in contingent workers. Furthermore, our indirect materials spent decreased by 50 basis points as a percentage of sales. At the same time, we decreased our office space by 12% and improve our direct shipment and digital capabilities. Let's now take sorry, let's now take a closer look at our achievements in our 6 sustainability targets on the next slide. First, sustainable revenues, 79 percent of our revenues were sustainable in 2018, nearing our 2020 targets of 80%. On a cumulative basis, we sold 1,700,000,000 LED lamps since 2015, We are the only lighting company in the world that has achieved that level of performance. So as far as we concern, we have now achieved 87% of our commitments and others ahead of track to deliver more than 2,000,000,000 LED lands by 2020. We also target to become a neutral in 2020, We reduced our CO2 emissions by 43% in 2018, and we had a carbon neutral in 9 markets. 100% of our sites should be 0 waste to landfill by 2020. In 2018, we reduced our waste to landfill by 30%. We also want to ensure a safe and healthy workplace for our employees. We reduced total recordable cases by nearly 60% compared to our 2015 baseline. And finally, we have built a sustainable supply chain 93% of our risk suppliers have been audited already achieving on our 2020 target. Let's now go to slide 24 to talk about our intended capital allocation for 2019. So we will propose to pay a cash dividend of to be paid in 2019. This represents an increase of 4% compared to 2017 and a payout ratio of 46% within the interval of 40% to 50% that we indicated earlier. In line with our capital allocation policy, we will exercise disciplined management of our balance sheet, and we look for non organic growth opportunities, primarily through small to medium sized acquisition. If in the course of the year, the funds needed for non organic growth opportunities are substantially less than the available capital. We will consider all the use of our capital, which includes returning excess cash to shareholders through share repurchases. Let me now move to Slide 25 and let's have a look at what we've done under our capital allocation policy since our IPO. So since 2016, we have generated a solid free cash flow every year resulting in a total free cash flow of 1,000,000,000. This has enabled us to maintain a financing structure that is compatible with an investment grade profile. In terms of cash uses, we will have paid a cash dividend of 1,000,000 since the IPO including the proper dividend over 2018. We consider various small to medium sized acquisition opportunities that result the acquisition of the Chinese urban lighting company, light Magic in 2018, which enables us to better capitalize on the large and fast growing urban lighting market in China. In 2017, we acquired some small companies of which stack lighting and PangRAB add 2 examples. Next to this, we made million of additional contributions to the U. S. Pension fund since our IPO, which reduced our 1,000,000 since the IPO to repurchase shares to cover performance shares plan and 1,000,000 to repurchase shares for cancellation. Let's take a step back and have a look at how we improve our financial measures over the last 5 years on Slide 26. The transition of our company is evolving successfully. Our LED based sales now represents 71% of total sales in 2018, while this was only 26% in 2013. At the same time, we have significantly improved our profitability. Our adjusted EBITDA margin improved by 370 basis points, since 2013. As we are moving to a more asset light business model, we have more than half our gross CapEx to only 1.3 percent of sales. And as a result, we have continued to generate a solid free cash flow which was 4.8% of sales in 2018. Let me now turn to our outlook and conclusion. So on Slide 28, you can find our outlook for 2019. So in 2019, we expect our growing profit engines combined, which, namely, is a combination of the LED, the professional and the home business groups to deliver comparable sales growth in the range of 2% to 5%. Our cash engine, the business group plans is expected to decline at a slower pace than the market, and in the range of minus 21 percent to minus 24 percent on a comparable basis. For total SignifAI, we aim to reach an adjusted EBITDA margin in 2019 within the range of 11% to 13% assets at the time of the IPO. Based on the prevailing spot rates at the end of December 2018, the currency impact on the adjusted EBITA margin for full year 2019 would be around minus 50 basis points and around minus 130 basis points specifically in Q1 twenty nineteen. We expect a restructuring P and L charge of between 1.5% to 2% of annual sales. And the free cash flow is expected to be above 5% of sales in 2019. So this was, for the outlook, let me now turn to the next slide, slide 29. Here, we show our progress made on achieving our 2019 adjusted EBIT and margin of 11% to 13%. We present the slide in a very much identical fashion to what we showed last year at the same period. So as you can see, in the period 2013 to 2019, we improved our adjusted EBITA margin by 370 basis points to 10.1 percent, which means that we are on track to achieve our 2019 margin target. Our performance in LED illustrates the benefit of our strategy focused on innovation and indirect cost savings. This enabled us to already reach the high end of our 2019 adjusted EBITA margin objective of 10% to 12% in 2018. Professional continues to implement its strategy focused on systems and services, editillumina sales and the continued rationalization of its cost structure. This supports the objective to increase adjusted EBIT margin to 11% to 14% in 2019. Home strategic focus is to realize profitable growth by driving the transition to connected lighting for consumers in and around the house. Its strategic priorities include strangling the fee you offering expand in growth market and broadening the lower cost portfolio to drive volumes. As operational performance in home has now returned to normalized levels, these priorities are expected to enable home to be within the adjusted EBITA margin range of 5% to 8% for 2019 as we indicated earlier. The performance of our cash engine lamps reflect the successful implementation of our last man standing strategy to increase our leadership in conventional products and optimize cash to fund growth. We feel very confident that the cash engine will again be able to deliver on the adjusted EBITDA margin target of at least 16% as we set out at the time of the IPO. Let me now close by saying that we remain very confident about our long term strategy. We continue to invest in growth and innovative offers despite more challenging macroeconomic environments to capture the strategic opportunity of smart and connected lighting. Well, with that, after having talked a lot, I would like to open the call for questions, which Stefan and I I'm going to be more than happy to answer. You. And our first question comes from the line of Leo Carrington from Credit Suisse. Please go ahead. Your line is now open. On the home division, can you give us an indication of the sellout rate that you saw through the the channel? And how do you see the current and evolving demand and competition trends there? Yes. Good morning, Leo. So on the home, so first of all, We have done what we said we would do during the year. We thought that Q1, Q2, and Q3 would be partially impacted and that we would come to normalized level in Q4, at least from a P and L perspective, and that's the case. We have seen the selling out rates diminishing all around the year. Given the fact that, well, this business becomes bigger, that there were also other offers going to the smart home that took part of the time that we were enjoying previously. And it's also true that competition and alternative architectures are also in place now. We still believe that we enjoy nevertheless a very strong market share that we have the offer, which is the most comprehensive on the market at this point in time. But we are looking also at what is happening on the market in terms of alternative architectures and what some competitive offers also providing to adapt. But the selling out as lowered during the year as we started, I think, to mention it in Q3. Okay. And as a follow-up, can you give us an indication of how you expect margins in this division to progress for both 2019 and beyond. Do you anticipating to continue to build the development and marketing spend? Or is this spend now at the right kind of left level and you can begin to see margins step on? I think, Leo, for that business and especially the connected which is a pool business, spending in marketing activation is absolutely fundamental. It builds the market, but it also educates customers. And this is something that we definitely need to continue doing in that business. The margin expansion that we have experienced over the years is allowing us to do this. That business in 2017 was performing at an adjusted EBITA level of 2.3%. You know what has happened in 2018. Think that now we're starting from a clean sheet again and we believe that we continue to expand the margin in line with the target that we have given to 2019. We will give a new guidance beyond that when time comes in the course of 2019. Okay. Thank you very much. Thank you, Liam. Thank you. Our next question comes from the line of Andreas Willy from JP Morgan. Please go ahead. Your line is open. Yes. Hi, good morning. It's Akash on behalf of Andreas. My first question is on LED margins driver there. And maybe if you can talk about what was the benefit of your prices relatively holding up against LED chip prices, which we have seen declines there accelerating in recent months? And how do you expect this price cost in LED chips to trend in 2019 what you have baked in in your guidance? Yes. Hi. Let me take that one. So I'll expand on LED profitability, but to your question regarding the price cost on LED chips, yes, we've seen a number of components for which price has continue to decline. You also remember that for some components, there's been also more tension. I think what matters to us is that overall, especially on LED, we've been able to do a good job again in 2018 at extracting savings from the bit of material in the way we negotiate with suppliers, but also in the way we design product and concept savings activities. And that has enabled to really offset the last part of the price decrease. Now you're right. We have also seen since now several quarters, a slowdown of the price decline for LED, both in LED lamps, but also in LED electronics. And when you put the 2 together, this is also what explained that we've been able to improve the profitability. Now the 14.4% that we have reached in Q4 is also driven by the old indirect cost reduction that have happened throughout the company, but also specifically in our LED activity and has also helped increase the profit compared to a year ago. So it's really a combination of those to elements. And a follow-up on 23,000,000 other business income in Q4 P and L, maybe if you can elaborate where that is coming from and whether there is any gain that we should be aware of? Thank you. No, nothing particular here. There's been some elements that have been settled and which for accounting reasons, because they were related also to some Philip's discontinued activities at the time of the separation are booked in the OBI. They don't show up in the adjusted EBITDA. And that's why we report them in the OBI. And this is also why they were not reported in the tax time. But again, they are not accounted in the adjusted EBITDA, but nothing that is recurring here. Thank you. And our next question comes from the line of Daniel Acosta from Goldman Sachs. Please go ahead. Your line is open for your question. Okay. Drop off. So our next question comes from the line of Peter Orlaisen from Kepler Cheuvreux. Please go ahead. Your line is open. Good morning gentlemen. My first question is on the indirect cost savings. We've seen a clear ramp up in savings since the middle of 2017. To just over 80,000,000 in Q4. Do you think that the kind of run rate is sustainable in 2019? Or could we see that potentially level off? And then a question on the free cash flow outlook, Stefan, what do you assume in terms of cash out related to restructuring? Will that be broadly in line with the P and L charge? And do you think there is a further scope to improve the working capital? And if so, in which areas? Yes. So let me start with the indirect cost reductions. You're right. When you look at the quarterly evolution, with all the actions that have been taken at the beginning of the year and also a longer year, we have seen an increase of the indirect cost savings every quarter. I don't know exactly what you mean by trend, but I don't think the trend of the increase quarter after quarter is something that we are going to continue. But conversely, we don't intend to level off or to now be stable on the cost side. We believe that there are further opportunities in terms of productivity, in terms of efficiencies, in terms of indirect cost indirect material spend that we are working on and that are going to come in order for us continue to reduce in absolute value our indirect cost. So that is something of course, we are going to benefit especially at the beginning of 2019 of the carryover effect compared to 2018 of the cost reductions, but there are other actions that we have taken in the second part of 2018 and that we will take also in 2019 that will allow us to continue and maintain that trend. On the free cash flow outlook and more specifically on the restructuring, from a cash out standpoint, we expect that in 2019, the restructuring cash out is probably going to be relatively close to the level of 2018 and compared to the P and L charge, probably we will have another year where the cash out is going to be a little bit above the P and L charge itself, and that's the way we see 2019 at this stage. And working capital, any scope for improvement there? Yes, no, you're right. On the working capital, as I have mentioned, as you can see, 8.4% is quite a reduction even better than the end of 2017. There are still a number of actions that we are taking, both in terms of supply chain, that will allow us to improve on the inventory side. But also in terms of payment terms, which we believe can allow us to further optimize our working cap. So we believe there is further room for improvement here and we are working on that. Thank you. Thank you. And our next question comes from the line of Martin Wilkie from Citi. Please go ahead Martin. Your line is open. Yes, Martin from Citi. Just a question on the outlook for Professional. I mean, you talked about some challenging markets and highlighted a couple of regions. When you look at the margin uplift that you need next year, to get into the range, can you do all of that from cost savings? Does professional get perhaps our bigger share of indirect cost savings in 2019? And have you assumed stability in the end markets to get to that level of profitability? Or do you think that you can get to that margin level just from the cost savings even if we continue to see these challenging markets during the quarter 2019? Yes, good morning Martin. I think that's a very good question on professional. When you look at the performance in Q4, With a lower top line than Q4, the same period the previous year, we've been able to achieve the same, I just did it as a percentage. So we have clearly brought the breakeven point down So that P and L is extremely leveraged. So more top line immediately translate to the bottom line. There were very strong actions that we implemented during the year in terms of cost reductions, not only at the level of that business, but they also benefited from the cost reduction that we did also at the level of the group. I believe that for 2019 in order to go where we want to go, we need to have both. We need to have the continued improvement of the cost base And we also need to have some top line positive traction. The 2 are going to be necessary Once again, when you see what we're doing in that business, it's not only LED lumina where we've progressed a lot. It's systems services, but also the new growth platform that we have been mentioning and that we have plans to develop and to deploy once again providing growth in 2019. I've talked about hockey culture. I've talked about solar. And the intangible projects coming on for the year into 2019. So we need both. We need growth and we need to continue improving our cost base. And for that top line traction, it's much more about your own product offerings as opposed to assuming that we suddenly see inflection in the underlying markets, which obviously still remain a little bit questionable as to whether we see some underlying improvement quite yet. Well, on the traditional parts of the business, this is why I'm mentioning the new growth platforms. We were taken aback at the back end of the year by end market that had been so far very strong. I want to talk about Greater China. Started to degrade in Q3 and continued in Q4. And Europe, I mean, if you look at Europe in Q4 2017, That was a very, very strong geography for us for professional in mostly all of the country except for the U. K. And that we've seen at the back end of the year in Q4, Europe really slowing down. So what happened is that projects were either canceled or delayed. Now after having said all that, we have a plan for 2019 on which we're executing. And we believe we have the capabilities from a top line perspective and also from a cost reduction perspective to achieve at the mid term target that we have indicated. Our next question comes from the line of from Goldman Sachs. Just had a quick follow-up on something that you already mentioned. You mentioned that your sellout in the home division is decreasing So what is making you confident on your top line assumption of 2% to 5% without lamps given that your sell out in home has decreased and also given recent construction trends that you've mentioned like in Europe and China? Thanks. So first of all, if it has decreased, it's still dynamic. And when it comes to home, we also are betting on the geographical expansion that we are forecasting. They are four key markets for us where we have already launched the product and where we believe that we could also have interesting growth prospects. We're talking about Indonesia, we're talking about India, we're talking about Japan, we're talking about China, where I think that we are at this point in time at the very beginning of the S curve. So there's so much that we can do there. So that's another source of growth for us for that business. Okay, great. Thanks. And just a quick follow-up on your FCF guidance. Could you be able to ascribe your other FCF parts, which is you haven't described it by the lamps or non lamps. What else is excluded from your divisional FCF breakdown? Yes. So, as you know, we report our 4 BG's and then we have a segment that is other, which is negative 1,000,000 in terms of adjusted EBITDA, if you take the non adjusted, it's minus 137 And this is mainly a corporate cost that don't have to and should not be allocated to the business groups. And as well as some core research activities. So it's a mix of those elements and this is what we report every quarter. Deal in addition to that, we have all the tax interest, some pension contribution that are not related to the business group people. So all these elements are in other. And in terms of free cash flow, this is what they represent. And we don't think we should then make an exercise to try to allocate all that us this is unrelated to the performance of the beaches in terms of free cash flow. Thank you. Our next question comes from the line of Mark Hessling from INB. Please go ahead. Your line is open. Yes. Thank you. And looking at the sales growth outlook for 2% to 5% for the growth businesses, Like for the separate divisions, what do you think that will drive that? Because you need quite some improvement versus what we've seen in 2018. I can understand that in the home segment, you have an easy comparable base in the first half of the year. But especially in professional, do you have like order intake? Those kind of numbers to make you confident that you indeed go back to that higher growth level? So I have more or less Musk explained on home, the geographical expansion on crops. Yes, we see some potential projects and we see saw the traction on the trade part of the business in some geographies, which is moving in the right direction. And I will insist once again on some of the new growth platforms that we talk about, systems, services, Horticulture, where we are lining up interesting projects for the year, also solar and we may comment in the coming quarters about some project wins that could be quite substantial. So we have a plan today to achieve the year and to get to these levels. Now we also depending on the end market macroeconomics. It's been a very complicated world to do business in the past quarters. But we believe in what we're developing today that offer a really differentiated promise to our customers and help us to win on a daily basis against competition. But yes, it's not going to come from the usual business doing exactly the same thing. Now we have to find and we have found a new growth avenue that we're currently developing. Okay, thanks. And then the other one is your comment on the potential buybacks later in the year. How do you think of that? Is that driven by where your balance sheet is? I know it's 0.9 times net debt to EBITDA. In the first half of the year, you have to take cash out for the dividend. Is that the way you want to remain around that one time level? And then in the second half of the year, when you get the cash in again in the fourth quarter, you're thinking back again on buybacks. Is that the way you think about it? Well, we've always said that we wanted to be investment grade and that the leverage for us had to be around 1. So that has been systematically our position. Now we've always said that in terms of capital allocation, priority is for growth, but in order to find growth opportunities and non organic growth opportunities, we have been extremely selective. And if you go back at what we did in 2018, we did exactly that. We are concluded some inorganic moves. We've talked about smaller ones and want a bit more substantial in China. And then when we were left in the middle of the year with excess cash, we decided to return it to the shareholders. So I think we have a very consistent capital allocation policy that one thing which is clear, we would like to find opportunities for growth in organic. If we find them, we'll invest in them. If we don't find them. Cash is not going to burn our hands to spend it. We're very selective. We're very disciplined so far. I think it has worked. The acquisition we've done in China of Life Magic has been a very good one. For us so far. It has also helped us to close the famous big project that Stephan has commented about on the Shanghai bond. Just imagine it's 40 buildings and 3 bridges with lights in completely connected and synchronized and that technology has helped us to do that. Now we're looking at that technology, not only for what can be achieved in China, but there are some complementary elements in what that acquisition is bringing that we are now selling outside of China So this is what we're doing. We're looking at the right opportunity. If the right opportunity comes, we invest. If not, if we have excess cash along the year, we will return it back to the shareholders. Our next question comes from the line of Peter Reilly from Jefferies. Please go ahead. Your line is open. Can you give us a bit more color about what's happening in the lands business? You've been declining for some years at a high teens rate. You're now talking about low 20s in 2019. And obviously part of your strategy being to harvest the golden tail. What's happening with the business? Is the rate of decline going to keep on getting worse? Because the business is going into more of an accelerating downturn as LED lights replace more and more of the traditional light fittings or light bulbs. So why is growth rate getting bad? I mean, this is the start of a longer term trend as the business goes into an acceleration decline? Yes, good morning, Peter. Specifically, in 2019, it's also linked to halloGen. If you remember, halloGen ban had happening in the course of 2018. So we had inventory build up and it increased the sales of that business in 2018. So we're going to have the negative impact of this, probably in 2019. That's why the decline rates, we see a decline rate higher. That's especially the case in Europe. Otherwise, with those rates of decline, we're still declining much less than the market continuing to gain market share. So very specifically in 2019, it's because of this. Okay. And if I could just follow-up on the outlook in LED, you've had a very significant fall on the growth rate from 13% in 2017 to about 0 in 2018. Can you give us a bit of an update on what the structure of LED looks like now? How much is traditional declining or traditional elagilamps that it may be starting to plateau, how much is elagiot electronics? Because obviously the mix must have changed quite a lot over the last couple of years and will help to understand the medium term outlook, but you have a bit more color on what's actually in that business today? The mix hasn't changed dramatically. We're still more than half of what we sell in that business is LED lamps and the rest is LED electronics. So that hasn't changed dramatically. To your earlier questions, what we see in LED lamps, at this point in time is the start of the shift from people buying LED lamps integrated luminance. That's happening. But as far as LIDLAN's market is concerned, in volume, we still see growth in quantity of products. But price erosion and mix, meaning that we see customers buying more and more cheap elibilamps we have a decline in terms of quantity and we see that's what we see at the market level at this point in time. It doesn't mean that the market is in decline at least in quantity of products, not yet. So you remember that the people doing market analysis was saying 2019 2020. Would be the pickup of that market, at least in quantity of product. That's what we also see. Thank you. Our next question comes from the line of Wim Kilo from ABN AMRO. Please go ahead. Your line is open. Yes, good morning. We have Michele ABN AMRO. My first question is on the Lambs business based on your reply to the previous question. About why the declines are accelerating. Is it fair to assume that the acceleration of the declines in 2019 is completely attributable to the fact that you have a relatively difficult comparable base due to the halogen ban in Europe? And should we be modeling more for the usual guided range of 18% to 22% declines as of 2020 again? And as a follow-up, related to this in your cash flow guidance, According to the outlook, you're going to make at least 5% in cash flows in 2019. That loosely translates into a modest increase in the free cash flow for at your cash cow coming down quite significantly in 2019, where should we basically see that acceleration of the the cash flow generation come from? Is it from your LED Professional Home business? Or is it let's say a reduction in the cash drag from the other segments? Thanks. Liam, to your first question, we it exactly as you've mentioned it. We've modeled it in the same way. That's what explains the high decline 2019. Then we go back to a more normalized 18 to or 15 to 20 percent decline after that. There's just one caveat is the potential ban of halogen in another geography like the Americas that is going to be decided later that may have an impact, but we'll talk about that when we know. Yeah. And on the on your free cash flow question, yeah, you're right, the free cash flow guidance that we give which is now expressed as a percentage of the total sales. If you apply purely the 5% you end up with obese slightly more than what we've done in 2018. Now we have indicated at least 5%. So our ambition is to be able to deliver more than that. And to your more specific point around what's going to drive that, you're totally right. It's going to be in the 3 growing profit engines, because as you saw, they don't just generate profit increased, they also generate quite a substantial free cash flow and it's increasing. You saw the increase in 2017 sorry, in 2018 was plus 1,000,000. If you take out the real estate of 2017 in those 3 digits, in 2019, especially given that home was negative in 2018, Yes, we believe there is potential for significant increase of the free cash flow of those 3 bg's, and that's true for home. I think it's true as well for growth. So the other cash flow for the minus $372,000,000 that is going to stay broadly flat or is that going to come down as well? Well, it's a bit difficult to say. It's going to depend first on taxes because a substantial part of that is the tax that we pay. So that's one element. The second element is, as you know, in here, we still have our pension cash out especially the part that we contribute to the U. S. Pension fund. And we said that in 2019, we would complete the overall contribution, providing another $50,000,000 of contribution we expect that one is going to stay there and that is the last one that we intend to make. So later on, that one will go away and it will improve the free cash flow. And then finally, the other segment, when you look at the adjusted EBITDA, you can see that a year on year in 2018 versus 2017, there's been an improvement. That's also because of our indirect cost reductions, which impact not just the business group, but also the segment other. And we expect in 2019 to also improve there and to translate that into cash. So All in all, yes, I hope that the other segment in terms of free cash flow will also improve. Very much. Thank you. And our next question comes from the line of Sven Weier from UBS. Please go ahead. Your line is open. Good morning guys. Just quickly following up on Peter's question regarding LED, the breakdown between the components and the lands. Can you just remind us about the difference in profitability? Are they both around the same margin level that would be the first question? Yes, good morning, Zane. As we've said on and on, at the same level of operating margin. Okay. And then the other one, just a housekeeping one on CapEx. Any guidance on CapEx for 2019? Well, we spent there in terms of CapEx 1,000,000 in 2018. This is about 1% of sales. So we intend to stay within that percentage. We may do a little bit better, but no major change there. Okay. Thank you. Thank you. Our next question comes from the line of allo Katre from Societe Generale. Please go ahead. Hi, thanks. Thanks for taking my questions. Just one quick follow-up, in terms of professional side on the growth when you're talking about the 2 to 5. I mean, clearly, Europe and China are quite weak. The comparison base that you have in the first half of the year is a bit tougher over there. So just wondering, and obviously, you talk about the LED dynamics. So just wondering, the 2 to 5, is it really then dependent just on home, coming back in? And how large, therefore, in that context, this vertical and solar, the stuff that you're talking about in terms of the new growth avenues. So that's the follow-up and then I have one of the main question. Yes, good morning, Alex. When we said 2% to 5%, it's the growing profit engine, which is the combined growth rates of home, professional and LED. So as it comes to what's going to happen on the year, of course, we start with a lower base of comparison of home, but we expect also home to perform all year long. And bring its fair share of growth. We believe that the growth potential here in the market in which we are plus the geographical expansion is clear. In professional, we're not giving an indication of how much Horticulture and solar can bring, but it can be quite material. We're talking about markets that sizing respectively for horticulture and solar $600,000,000 at $2,700,000,000 both growing at rates of 20% to 25%. So these are interesting opportunities in which we have also from a technological standpoint, taken a clear step ahead by developing adapted solution with light recipes for horticulture or fully integrated street lumina with the solar panels, the battery, and the light source within the same frame. So we have taken, we believe, some steps ahead against competition there. So, and we are working on tangible projects. So, So I think for professional, we cannot really distinguish the semesters in terms of base of comparison. We can for home as I mentioned previously and we see the rollout including LED to growing by 2% to 5% for the full year. Okay. Okay. Thanks. And then just the main question, I mean, I noticed that you now demarked the lamps and the non lamps, business. Just wondered what was the thinking there in terms of doing it at this point in time because a lot of the dynamics that you talk about have been in place since the IPO. And lamps in a way to me seems like it's almost been put into a quasi operations type of structure. So just wonder how we should read that and think about that. Well, we've given an indication, Alok, that you wanted, which is also the cash flows. That were not indicated previously. We thought that at this point in time, we needed to show that what we what the future of the company is based on, which are the growing profit engines and not only delivering top line, over the years. They're not only delivering profitability over the years, but they're also delivering a cash, which is today, superior than what our cash engine lands is providing. So we wanted also to put a strong emphasis on that part of the business. Continued operation. It's a very lead operation in what we do, but we believe that this is a business which is basically made to generate cash, continue to increase market share. We've done that along the years. We're going to continue. But where we are creating the future of the company and this is what we want also you to focus on is on the new or the growing profit engine. This is why we've done it that way, giving you also more information so you can appreciate the contribution to the overall performance of the company of these growing profit engines. We are now approaching the end of the call. We will now take our last question from the line of Annabel Vasquez from Morgan Stanley. Please go ahead. Your line is open. Hello. Good morning. Thank you very much for taking my question. I just had a follow-up on the Vision free cash flow. You mentioned that the profit engines have increased free cash flow by $47,000,000. Can you give any further granularity on division that was driven by, what's the split, and how that might change for 2019? Yeah, that becomes, that becomes, of course, quite granular. Yeah, we've seen, I think what we hinted 2 is the fact that given the performance of home in 2018, it has remained negative in 2018. And we've hinted to the fact that we expect this to change in 2019 on the back of a more normalized performance in home, which is exactly what we have seen in the fourth quarter. And we expect now to be able to enjoy that throughout the year 2019. So that part is an important driver for the improvement. For the rest, no, those divisions are the 2 other divisions are generating a substantial amount of free cash flow. And we expect both of them to continue to improve their free cash flow. And then just another question. On the, European Luminess, can you give us some color on the trends between volume and price that you've been seeing and how that might change that yet? For the pricing of European Luminaire, Yes. Yes. Pricing and volume. Yes. So Q4 level of activity was not as strong as a year ago. But I would say overall, as we have seen in our trade business in Europe, has been performing decently. On the price, you have we've been pressure. We've been, entrants on the low end range by Chinese that put some pressure on price. But this is also different type of segment. So it's also more in the mix. So that's how during the fourth quarter. And I would like to return the conference call to the speakers. Thank you. Ladies and gentlemen, thank you very much for attending the call and for asking your questions about our results. We noticed that there might be one or two questions left in the queue and we will call those people back. And for the other one, you have any additional questions, please don't hesitate to contact us and we're happy to answer your questions. And again, thank you very much and enjoy the rest of your day. Ladies and gentlemen, this concludes today's conference call. Thank you very much for attending. You may now disconnect your lines