Okay, Mr. Jansen, I think your line might be on mute.
Thank you. I'll start. Good morning, everyone, and welcome to the Signify earnings call for the fourth quarter and full year 2018 result. With me are Eric Rondolat, CEO of Signify, and Stéphane Rougeot, CFO. In a moment, Eric will start with a welcome and introduction, after which Stéphane 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 7:00 A.M. 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, everyone, and thank you for joining us today. I propose that we go straight to slide four. 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 EUR 30 million at the end of 2017 to EUR 44 million at the end of 2018. We delivered on our financial objective to achieve a margin within the range of 10%-10.5% in 2018.
Our adjusted EBITA margin improved by 50 basis points to 10.1%, 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 the organization and reduce our indirect cost base. Our adjusted indirect costs decreased by EUR 224 million 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 EUR 306 million. Last year's free cash flow of EUR 403 million included both a net real estate gains of EUR 52 million and EUR 40 million lower restructuring cash out.
In 2018, we returned EUR 462 million to our shareholders through dividend and share repurchases. When including the proposed dividend for 2018, we will have returned EUR 1.1 billion to shareholders, since our IPO in May 2016. As you know, sustainability is going to be my next point and is at the center of what we do, and we are very pleased with the progress we have made towards achieving on our sustainability targets for 2020. For example, we target to be carbon neutral in 2020. We reduced our CO2 emissions by 43% in 2018, and we are now carbon neutral in nine of our markets. While market conditions are challenging, we continue to focus on new growth platforms to strengthen our market leadership and progressively improve our growth profile.
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 the medium-term financial targets that were set at the time of the IPO. Let me now go to slide number five. It is a very important slide for us. Today, Signify 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 EBITA margin by 500 basis points to 8.6% since 2015. They now contribute to 66% to the profit versus 31% back in 2015. On the other hand, our cash engine, namely the lamps business groups, increased its leadership, optimizing cash to fund growth. Let me now hand over to Stéphane, who will tell you more about the financial performance for our fourth quarter in 2018.
Yes. Thank you, Eric, and good morning, everyone. Let's now move to slide seven. Here you can see a snapshot of our Q4 2018 financial performance for what Eric has just described, which are our three growing profit engines. When you look at the performance of the growing profit engines in Q4, it reflects an improved top-line performance in LED 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.
You can see in the last column that looking at the profitability for LED, we were able to deliver a significant improvement of its margin, which is now 14.4%, while professional and home were able to maintain strong margin, relatively close to the level of the fourth quarter of 2017, despite lower sales. All together, our growing profit engine delivered an adjusted EBITA margin of 12.4%. This is an increase of 140 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 eight with LED. As you can see here, our comparable sales increased by 0.2% in the fourth quarter compared to last year.
This is a sequential improvement, and this is due to LED lamps, where the volumes continue to grow. We saw also the price erosion slowing down. Our LED electronic business sustained its positive comparable sales trend. Looking at the margin, the adjusted EBITA margin increased by 460 basis points, reaching 14.4%, mainly as a result of indirect cost savings. Turning to next page, slide nine. You can see here some of the business highlight of this quarter for LED. Let me highlight one of them on the glass filament 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. They come in very classic shapes, and they command a premium, which of course, is great for our pricing and profitability. They use the latest LED technology. They are around 80% more energy efficient than a conventional light bulb, and they last 10 times longer. On the LED electronic side, we have launched a new emergency driver solution in Europe. This is a driver that is designed to secure light in case the normal main voltage is failing. In that case, the driver immediately switches to battery mode in order to light up vital objects, for example, escape routes. Let's now move to BG Prof on slide 10. Here, as you can see, the comparable sales declined by 6.9%.
We all remember that the fourth quarter of 2017 was a very high comparison base. 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 EBITA 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 architectural lighting project. This is a massive project for the Shanghai municipality, which involved dynamically lighting the city iconic waterfronts with three bridges and over 40 buildings in the financial and tourist districts. We installed more than 50,000 connected light points along a 1.2 km stretch of the waterfront in Shanghai. This new lighting is expected to save the city between 50%-70% of its annual lighting cost when compared to the previous area that was lit by conventional lighting.
Our Interact Landmark software is being used to control and manage the light on the building rooftops and also on the three 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%. 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 U.S. started to build up inventories in the second half of 2017.
As you know, we've taken a number of corrective actions in 2018. 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 fourth quarter and all the actions that we have taken, home has been able to return to profitability in the fourth quarter and deliver an adjusted EBITA margin of 8.9%, which is very close to the level that was achieved one year ago. Home is back on track, 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 Philips Hue outdoor luminaire and light strips. In order to extend the ambience of Philips Hue 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 Philips Hue outdoor sensor. With this new sensor, it can welcome you into your home with light as you approach. Moving on to lamps, 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 brand coverage and customer reach with all the other businesses within Signify. As a cash engine, lamps continue to deliver on its last man standing strategy. This resulted in further market share gains in the fourth quarter in 2018, a strong free cash flow generation for the whole year that reached EUR 308 million. As a percentage of sales, free cash flow was stable at 22% when excluding the real estate proceeds that we had in 2017, although 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 EBITA bridge. As you can see here, the adjusted gross margin for the group as a percentage of sales decreased by 120 basis points in the fourth 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 along the year, like the rupee in Indonesia, the Brazilian real, the Argentinian peso, also the rupee in India.
You can see also that the impact of price on the growth margin continues to be largely offset by the savings that we've been able to obtain on the cost of goods sold. We have also benefited, like previous quarters, from the strong reduction of our indirect cost. Eric will provide more details about all the initiatives that we have taken. Let's now take a look at the working capital on the fourth quarter of 2018. When you compare with the same period of last year, we actually continued to decrease our working capital by EUR 61 million.
At the end of the year, our working cap was EUR 536 million. This is 8.4% of sales, and this is even lower than the level that we reached at the end of 2017. 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 EUR 148 million 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. During the quarter, we bought for EUR 125 million 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 EUR 40 million, and also the net change in provision was EUR 45 million. Next to that, we paid EUR 29 million of tax and interest. All in all, that allowed us to decrease our net debt position to EUR 589 million 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, Stéphane. Let's turn to slide 19. As you can see, our comparable sales growth of our growing profit engines combined was -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 two years. In 2018, 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 generate 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 about our new and promising growth platforms on the next slide. We are investing heavily in the fast-growing areas of horticulture, solar, and Li-Fi, as these areas all contribute significantly to a more energy efficient usage of electricity and hence 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. They 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 horticulture in 2018 was the expansion at Agro-Invest in Russia, where after the successful installation of phase one, our customer decided to expand from the equivalent size of 40- 100 soccer pitches. I also see great opportunities in solar. Let's have clear in our mind that there are still more than 1 billion people who do not have access to the electricity grid. Solar-powered lighting provides this access, showcasing the vast potential of this market. Solar is a safe and sustainable alternative to currently used 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 Li-Fi. In 2018, we were the first major lighting company to Li-Fi enable some of our existing luminaires. As you know, Li-Fi provides an extra layer of security versus solutions that are based on radio waves, as it is based on line of sight. The bandwidth is more than 1,000 times the size of the radio spectrum used by Wi-Fi, so it can connect many smart devices and multiple users.
Usage of Li-Fi is ideal in radio frequency sensitive areas like hospitals, clinics, factories, and schools, or areas with poor or no Wi-Fi connection at all. Like for instance, multi-tenancy buildings. We see a very healthy appetite for Li-Fi, which is reflected in the fact that since our first pilot with Icade in France in the first half of 2018, we now have more than 30 pilots in all corners of the world. Let's now move to slide 21.
Here, we show the comparable sales growth and adjusted EBITA margin for our growing profit engines, and also for our cash engine. 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 EBITA 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 EBITA margin in Professional improved by 120 basis points, mainly driven by lower indirect costs. In Home, we had a comparable sales decline of 3.8% in 2018. Given the inventory built up at our trade partners in the U.S.A., the adjusted EBITA margin of -8.1% 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 2018, and as Stéphane mentioned, return to performance to normalized level in Home at the end of the year, and very specifically in Q4.
On the other hand, our cash engine. Lamps continues to deliver on its last man standing strategy, which resulted in further market share gains and a free cash flow of EUR 308 million. Let me now move to slide 22, where we can see the evolution of our indirect cost savings. We are executing on a multi-year transformation program to simplify the organization. In full year 2018, we lowered our indirect cost base by EUR 224 million 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% of sales, keeping the company well on track to further improve the adjusted indirect cost base. The significant reduction of our indirect cost base in 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 material spend decreased by 50 basis points as a percentage of sales.
At the same time, we decreased our office space by 12% and improved our direct shipment and digital capabilities. Let's now take a closer look at our achievements in our six sustainability targets on the next slide. First, sustainable revenues. 79% of our revenues were sustainable in 2018, nearing our 2020 targets of 80%. On a cumulative basis, we sold 1.7 billion LED lamps since 2015. We are the only lighting company in the world that has achieved that level of performance. As far as we're concerned, we have now achieved 87% of our commitment and are thus ahead of track to deliver more than 2 billion LED lamps by 2020.
We also target to be carbon neutral in 2020. We reduced our CO2 emissions by 43% in 2018, and we are now carbon neutral in nine markets. 100% of our sites should be zero 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. 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.
We will propose to pay a cash dividend of EUR 1.30 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%-50% that we indicated earlier. In line with our capital allocation policy, we will continue to exercise disciplined management of our balance sheet. 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 other use of our capital, which includes returning excess cash to shareholders through share repurchases.
Let me now move to slide 25, let's have a look at what we've done under our capital allocation policy since our IPO. Since 2016, we have generated a solid free cash flow every year, resulting in a total free cash flow of EUR 1.1 billion. 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 EUR 492 million since the IPO, including the proposed dividends over 2018. We considered various small to medium-sized acquisition opportunities that resulted in the acquisition of the Chinese urban lighting company, LiteMagic , 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 PointGrab are two examples. Next to this, we made EUR 140 million of additional contributions to the U.S. pension fund since our IPO, which reduced our liability and future interest expenses. In addition, we used EUR 68 million since the IPO to repurchase shares to cover performance shares plan and EUR 563 million to repurchase shares for cancellation. Let's take a step back and have a look at how we improved our financial measures over the last five 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 EBITA margin improved by 370 basis points since 2013. As we are moving to a more asset-light business model, we have more than halved our gross CapEx to only 1.3% of sales. 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. On slide 28, you can find our outlook for 2019.
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%-5%. Our cash engine, the business group lamps, is expected to decline at a slower pace than the market and in the range of -21% to -24% on a comparable basis. For total Signify, we aim to reach an adjusted EBITA margin in 2019 within the range of 11%-13% as set 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 -250 basis points and around -130 basis points specifically in Q1 2019.
We expect a restructuring P&L charge of between 1.5%-2% of annual sales. The free cash flow is expected to be above 5% of sales in 2019. This was for the outlook. Let me now turn to the next slide 29. Here we show our progress made on achieving our 2019 adjusted EBITA margin of 11%-13%. We present the slide in a very much identical fashion to what we showed last year at the same period. As you can see, in the period 2013- 2018, we improved our adjusted EBITA margin by 370 basis points to 10.1%, 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%-12% in 2018. Professional continues to implement its strategy focused on systems and services, LED luminaire sales, and the continued rationalization of its cost structure. This supports the objective to increase the adjusted EBITA margin to 11%-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 strengthening the Philips Hue offering, expand in growth markets, 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%-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 EBITA 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 Stéphane and I are going to be more than happy to answer.
Thank you. Ladies and gentlemen, we are now ready to take your questions. We kindly ask you to limit yourself to one question and one follow-up so that each participant has the opportunity to ask a question. If you wish to ask a question, please press zero one on your telephone keypad. That's zero one on your telephone keypad. Our first question comes from the line of Leo Carrington from Credit Suisse. Please go ahead. Your line is now open.
Good morning. Thank you for taking my question. On the Home division, can you give us an indication of the sellout rate that you saw through the channel? How do you see the current and evolving demand and competition trends there?
Yes. Good morning, Leo. On the Home, 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&L perspective, and that's the case. We have seen the selling out rate 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 pie that we were enjoying previously. 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 an offer which is the most comprehensive on the market at this point in time. 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. The selling out has lowered during the year as we started, I think, to mention it in Q3.
Okay, thank you. 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 level and you can begin to see margins step on?
I think, Leo, for that business, especially the connected part, which is a pull business, spending in marketing activation is absolutely fundamental. It builds the market, it also educates customers. 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. We will continue to do that. Let's remind also that that business in 2017 was performing at an adjusted EBITA level of 2.3%. You know what has happened in 2018. I think that now we step in from a clean sheet again, we believe that we continue to expand the margin in line with the target that we have given in 2019. We will give a new guidance beyond that, when time comes in the course of 2019.
Okay. Thank you very much.
Thank you, Leo.
Thank you. Our next question comes from the line of Andreas Willi from JPMorgan. Please go ahead. Your line is open.
Yeah. 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. 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. I'll expand on LED profitability, but to your question regarding the price cost on LED chips, yeah, we've seen a number of components for which price has continued 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 bill of material in the way we negotiate with suppliers, but also in the way we design product and concept savings activities.
That has enabled to really offset a large 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. When you put the two together, this is also what explained that we've been able to improve the profitability. The 14.4% that we have reached in Q4 is also driven by the overall 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. It's really a combination of those two elements.
A follow-up on EUR 23 million other business income in Q4 P&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 tax elements that have been settled and which for accounting reasons, because they were related also to some Philips discontinued activities at the time of the separations, are booked in the OBI. They don't show up in the adjusted EBITA, and that's why we report them in the OBI, and this is also why they were not reported in the tax time. Again, they are not accounted in the adjusted EBITA. Nothing that is recurring here.
Thank you.
Thank you. Our next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead. Your line is open for your question. Daniela seems to have dropped off. Our next question comes from the line of Peter Olofsen 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 EUR 80 million in Q4. Do you think that the kind of run rate is sustainable in 2019, or could we see that potentially level off? A question on the free cash flow outlook. Stéphane, what do you assume in terms of cash out related to restructuring? Will that be broadly in line with the P&L charge? Do you think there is a further scope to improve the working capital, and if so, in which areas?
Let me start with the indirect cost reductions. You're right. When you look at the quarterly evolution, with all the action that has been taken at the beginning of the year and also along the 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. 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 gonna come in order for us to continue to reduce in absolute value our indirect cost.
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. 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. 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. Compared to the P&L charge, probably we will have another year where the cash out is going to be a little bit above the P&L charge itself. That's the way we see 2019 at this stage.
Working capital, any scope for improvement there?
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. We believe there is further room for improvement here, and we are working on that.
Thank you.
Thank you. Our next question comes from the line of Martin Wilkie from Citi. Please go ahead, Martin. Your line is open.
Thanks. Yes, Martin from Citi. Just a question on the outlook for Professional. You've 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 a bigger share of indirect cost savings in 2019? Have you assumed stability in the end market to get to that level of profitability? 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 course of 2019? Thank you.
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 take it as a percentage. We have clearly brought the breakeven point down. That P&L is extremely leveraged. More top line immediately translates to the bottom line. There were very strong actions that were implemented during the year in terms of cost reductions, not only at the level of that business, 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 two are going to be necessary. Once again, when you see what we're doing in that business, it's not only LED luminaire, where we've progressed a lot, it's systems, services, but also the new growth platform that we have been mentioning. That we have plans to develop and to deploy, once again, providing growth in 2019. I've talked about horticulture, I've talked about solar, and there are tangible projects coming on for the year into 2019. We need both. We need growth, and we need to continue improving our cost base.
For that top line traction, it's much more about your own product offerings as opposed to assuming that we suddenly see an 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 platform. 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. Europe, if you look at Europe in Q4 2017, that was a very, very strong geography for us for Professional. In mostly all of the countries, except from the U.K.
That we've seen at the back end of the year in Q4, Europe really slowing down. 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. We believe we have the capabilities from a top-line perspective and also from a cost reduction perspective to achieve the midterm target that we have indicated.
Okay. Thank you.
Thank you, Martin.
Thank you. Our next question comes from the line of Athira Pradeep from Goldman Sachs. Please go ahead. Your line is now open.
Hi. Good morning. Thanks for taking my question. I just had a quick follow-up on something that you already mentioned. You mentioned that your sell-out in the Home division is decreasing. What is making you confident on your top-line assumption of 2%-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.
First of all, if it has decreased, it's still dynamic. When it comes to Home, we also are betting on the geographical expansion that we are forecasting. There 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. There's so much that we can do there. That's another source of growth for us for that business.
Okay, great. Thanks. Just a quick follow-up on your FCF guidance. Could you be able to ascribe your other FCF parts, which is, you haven't ascribed it to either lamps or non-lamps. What else is excluded from your divisional FCF breakdown?
Yes. As you know, we report our four BGs, and then we have a segment that is other, which is EUR -87 million in terms of adjusted EBITA. If you take the non-adjusted, it's EUR -137. This is mainly corporate costs that don't have to, and should not be allocated to the Business Groups, and as well as some core research activities.
It's a mix of those elements, and this is what we report every quarter. In addition to that, we have all the tax interest, some pension contribution that are not related to the Business Group people. All these elements are in other, and in terms of free cash flow, this is what they represent. We don't think we should then make an exercise to try to allocate all that to the BGs, because this is unrelated to the performance of the BGs in terms of free cash flow.
Thanks a lot.
Thank you. Our next question comes from the line of Marc Hesselink from ING. Please go ahead. Your line is open.
Yes. Thank you. Looking at the sales growth outlook for 2%- 5% for the growth businesses. For the separate divisions, what do you think that will drive that? 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. Especially in Professional, do you have order intake, those kind of numbers to make you confident that you indeed go back to that higher growth level?
I have more or less, Marc explained on Home, the geographical expansion. On Prof, yes, we see some potential projects, and we see also the traction on the trade part of the business in some geographies, which is moving in the right direction. 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, we may comment in the coming quarters about some project wins that could be quite substantial.
We have a plan today to achieve the year and to get to these levels. We are also depending on the end market macroeconomics. It's been a very complicated world to do business in the past quarters. We believe in what we're developing today that offer a real differentiated promise to our customers and help us to win on a daily basis against competition. Yes, it's not going to come from the usual business doing exactly the same thing. We have to find, and we have found a new growth avenue that we're currently developing.
Okay, thanks. The other one is your comments on 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 0.9x net at EBITA. In the first half of the year, you have the cash out for the dividend. Is that the way you want to remain around that 1-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 1x. That has been systematically our position. We've always said that in terms of capital allocation, priority is for growth. In order to find growth opportunities and non-organic growth opportunities, we have been extremely selective. If you go back at what we did in 2018, we did exactly that. We concluded some inorganic moves. We've talked about smaller ones and one a bit more substantial in China. When we were left in the middle of the year with excess cash, we decided to return it to the shareholders. I think we have a very consistent capital allocation policy.
There's one thing which is clear, we would like to find opportunities for growth inorganic. 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 LiteMagic Technologies has been a very good one for us so far. It has also helped us to close the famous big project that Stéphane has commented about on the Shanghai Bund.
Just imagine it's 40 buildings and three bridges with lighting completely connected and synchronized. That technology has helped us to do that. We're looking at that technology not only for what can be achieved in China, there are some complementary elements in what that acquisition is bringing that we are now selling outside of China. 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.
Clear. Thanks.
Thank you. Our next question comes from the line of Peter Reilly from Jefferies. Please go ahead. Your line is open.
Good morning. Thank you for taking my question. Can you give us a bit more color about what's happening in the lamps business? You've been declining for some years at a high teens rate. You're now talking about low twenties in 2019. Obviously, part of your strategy has been 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? Why is growth rate getting bad? I mean, is this the start of a longer-term trend of the business goes into an acceleration decline?
Yes. Good morning, Peter. Specifically in 2019, it's also linked to halogen. If you remember, halogen ban happening in the course of 2018, we had inventory build up and it increased the sales of that business in 2018. We're going to have the negative impact of this probably in 2019. That's why we see decline rates are 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. Very specifically in 2019, it's because of this.
Okay. 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 the traditional declining or traditional LED lamps that have maybe starting to plateau? How much is LED electronics? Because obviously the mix must have changed quite a lot over the last couple of years. It'll help us to understand the medium-term outlook if we could have a bit more color on what's actually in that business today.
Yeah. The mix hasn't changed dramatically. We still, more than half of what we sell in that business is LED lamps, and the rest is LED electronics. 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 to integrated luminaires. That's happening. As far as LED lamps market is concerned, in volume, we still see growth in quantity of products.
Price erosion and mix, meaning that we see customers buying more and more cheap LED lamps. We have a decline in terms of quantity, and 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. You remember that the people doing market analysis were 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 Gille from ABN AMRO. Please go ahead. Your line is open.
Yes. Good morning, Wim Gille, ABN AMRO. My first question is on the lamps 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? Should we be modeling more for the usual guided range of 18%-22% declines as of 2020 again?
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 2019. If I look at your cash engine coming down quite significantly in 2019, where should we basically see that acceleration of the cash flow generation come from? Is it from your LED Professional and Home business, or is it, let's say, a reduction in the cash drag from the other segments? Thanks.
Wim, to your first question, we see it exactly as you've mentioned it. We've modeled it in the same way. That's what explains the high decline in 2019. Then we go back to a more normalized 18% or 15%-20% 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.
On your free cash flow question, 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 probably slightly more than what we've done in 2018. We have indicated at least 5%, so our ambition is to be able to deliver more than that. To your more specific point around what's going to drive that, you're totally right. It's going to be in the three growing profit engines.
Because as you saw, they don't just generate profit increase, they also generate quite a substantial free cash flow, and it's increasing. You saw the increase in 2017-- sorry, in 2018, was EUR +47 million. If you take out the real estate of 2017 in those three BGs. 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 three BGs, and that's true for Home, and I think it's true as well for Prof.
the other cash flow for the EUR -372, 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. 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. We said that in 2019, we would complete the overall contribution, providing another $50 million of contribution. We expect that one is going to stay there, and that is the last one that we intend to make.
Later on, that one will go away, and it will improve the free cash flow. Finally, the other segment, when you look at the adjusted EBITA, you can see that 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. We expect in 2019 to also improve there and to translate that into cash. All in all, yes, I hope that this other segment, in terms of free cash flow, will also improve.
Thank you very much.
Thank you. Our next question comes from the line of Sven Weier from UBS. Please go ahead. Your line is open.
Yeah, morning, guys. Just quickly following up on Peter's question regarding LED, the breakdown between the components and the lamps. Can you just remind us about the difference in profitability? Are they both around the same margin level? That would be the first question. Thank you.
Yes, good morning, Sven. As we've said on and on, they're at the same level of operating margin.
Okay. Then the other one, just a housekeeping one on CapEx. Any guidance on CapEx for 2019?
Well, we've spent, in terms of CapEx, EUR 75 million in 2018. This is about 1% of sales. 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 Alok Katre from Société Générale. Please go ahead.
Hi. Thanks for taking my questions. Just one quick follow-up in terms of the professional side on the growth when you're talking about the 2%-5%. 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. Obviously, you talk about the LED dynamics. Just wondering on the 2%-5%, is it really then dependent just on home coming back in? How large, therefore, in that context, is horticulture and solar, the stuff that you're talking about in terms of the new growth avenues? That's the follow-up, and then I have one of the main question.
Yes, good morning, Alok. When we said 2%-5%, it's the growing profit engine, which is the combined growth rates of Home, Professional, and LED. As it comes to what's going to happen along 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, would be 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 are sizing respectively for horticulture and solar EUR 600 million and EUR 2.7 billion, both growing at rates of 20%-25%.
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 luminaire with the solar panels, the battery, and the light source within the same frame. We have taken, we believe, some steps ahead against competition there. We are working on tangible projects. 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 whole lot, including LED, growing by 2%-5% for the full year.
Okay. Thanks. Then just the main question. I noticed that you now demarket 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. Lamps, in a way, to me, seems like it's almost being put into a quasi discontinued operations type of structure. 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.
Yeah.
That were not indicated previously. We thought that at this point in time, we needed to show that what the future of the company is based on, which are the growing profit engines, are 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 Lamps is providing. We wanted also to put a strong emphasis on that part of the business. Now, we continue to manage Lamps the way we've been managing it. It's not a discontinued operation.
It's a very lead operation in what we do. We believe that this is a business which is basically made to generate cash, continue to increase its market share. We've done that along the years. We're going to continue. 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.
Okay, thanks.
We are now approaching the end of the call. We will now take our last question from the line of Annabel Asquith 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 divisional free cash flow. You mentioned that the profit engines had increased free cash flow by EUR 47 million. Can you give any further granularity on which division that was driven by, what's the split, and how that might change in 2019?
Yeah, that becomes of course quite granular. I think what we hinted to 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. That part is an important driver for the improvement. For the rest, no, the two other divisions are generating a substantial amount of free cash flow, and we expect both of them to continue improve their free cash flow.
Okay, great. Thank you. Just another question on the European luminaires. Can you give us some more color on the trends between volume and price that you've been seeing and how that might change throughout the year?
For the pricing of European luminaire?
Yeah.
Yeah, pricing and volume.
Q4 level of activity was not as strong as a year ago, but I would say overall, as we have seen in our trade businesses, Europe has been performing decently. On the price, yes, we've been pressure. We've been entrance on the low-end range by Chinese. That put some pressure on price. This is also different type of segment, so it's also more in the mix. That's what we've seen along the year, but nothing in particular in the fourth quarter.
Okay, great. Thank you.
Thank you very much. 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. We will call those people back. For the other ones, if you have any additional questions, please do not hesitate to contact us, and we're happy to answer your questions. 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.