Earnings Call: Q1 2018

Apr 26, 2018

Ladies and gentlemen, welcome to the Phillips Lighting Earnings Call for Q1 twenty eighteen. For the first part, of this call. During the Q and I would now like to give the floor to Robin Jansen, Head of Investor Relations. Mr. Jansen, please go ahead. Thank you, and good morning, everyone, and welcome Filipe's Leitin' earnings call for the first quarter results of 2018. With me are Eric Rondola, CEO, Phillips Leitin' and Stephane Roger, CFO. In the moment, Eric will take you through the first quarter business and operational performance. Stephane will then tell you more about financial performance in the first quarter, and Eric will end today's presentation with our financial 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. 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. Before handing over the call to Eric, I'd like to remind you of the following. As of the first quarter of 2018, Phillips Sliding reports and discusses financial performance based on the recently announced portfolio changes to further align the organizational structure with this strategy. In addition, we've made changes to the allocation methods managed costs and to the threshold for other incidental items as adjusting items when presenting certain non IFRS measures such as adjusted EBITDA. In March, we published a detailed overview of exchanges and the effects these changes had on prior year financials. This update can be found on and downloaded from 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. Let's go straight to Slide 4. The first quarter of 2018 marks a soft start of the year, as indicated previously, when we announced our full year results. This was mainly due to a weak performance in home and most notably in the U. S. However, the other three businesses delivered solid performances. Total ADB sales increased by 5.6% and now represents 68 percent of total sales compared to 61% last year. Looking at our margin, It was 50 basis points lower than last year with an improvement in lands, LED and professional offset by home. We have also made good progress on the cost side with a 13% reduction in our indirect cost base. I am pleased with our free cash flow performance after a strong 4th quarter in 2017. Excluding the real estate proceeds of 1,000,000, our free cash flow was higher than last year. Let's move now to Slide 5, where you can see the financial performance by business group. If we look at comparable sales growth, LED and professional delivered positive growth, Lambs also did well as continued to decline less than the overall conventional lamps market. However, in home sales declined in the quarter, which I will explain in more detail in a couple of minutes. And professional all improved, say, adjusted EBITA margin. And we are especially pleased with the margin improvement of 310 basis points in professional. The adjusted EBITA margin of home dropped sharply and mainly due to lower fixed cost absorption and investments in growth since the first quarter of 2017. Let me now walk you through our business groups and on Slide 6, we are starting with lamps. Comparable sales declined by 17.6%. We estimate that the conventional lamps market can to decline faster than our Williams business in Q1, which has resulted in continued market share gains. Despite the decline in top line, Lance has been able to sustain a high level of profitability at 20 point 1.2%. This is 80 basis points higher than last year and driven by procurement savings, productivity and lower indirect costs. Restructuring costs amounted to EUR 70,000,000 in the first quarter, and are mainly related to the announced closure of our halogen factory in Ahan Germany. Let me now move to LED on Slide 7. Comparable sales increased by 3.6% on the back of a relatively high operation base as the LEDs experienced a strong start of the year in 2017. Our growth in LED lamps remained robust with volumes gradually converging to at growth while price erosion is reducing. LED electronics sales were flat due to lower demand by OEMs, particularly from Tier 1 customers. The adjusted EBITA margin improved by 110 basis points to 9.6% in the first quarter due to lower price erosion and mix improvement and lower indirect costs. Let's move on to professional on Slide 8. In professional comparable sales increased by 3.2%. Performance in Europe and the rest of the world remained solid while market conditions in the United States continued to be soft in particular for small to medium sized projects. In that part of the market and in the stocking flow business, we continue to see increased competition specifically from locals, producers, which results in increased price pressure. In Saudi Arabia, market conditions continue to be challenging and it negatively impacted us and our CSG by 220 and basis points. The adjusted EBITDA margin improved by 310 basis points overall to 5.2%, mainly driven by operational leverage reduction of factories and lower indirect costs. Let's now turn to Slide 9, and let's talk about home. So Home reported a negative comparable sales growth of 6.4%. Let me provide a bit more detail on what caused this decline. So we had a very strong growth in home systems in the third and fourth quarter of 2017. Together with our trade partners, especially in the U. S, we had even higher expectation compared to what was actually delivered. We realized that this had led to a high level of inventories at our trade partners. This resulted in lower sales in the first quarter to allow for inventory reductions at these trade partners. This low level of sales impacted our profitability in a material way in the first quarter as we were not able to fully absorb fixed costs, especially given the investment in growth since the first quarter of 2017. We are undertaking a set of actions to improve performance over the coming quarters. We continue to broaden our product offering diversify our distribution coverage and increase our marketing activities. Our view for that the long term growth and margin potential of Connected systems for the home has absolutely no change because of the performance in Q1. We are confident that the action I just talked about back on a solid growth path, which will also improve its profitability. Taking everything into account, we expect sales also to be affected in Q2, but to return to normalized levels in the second half of the year for home. As a result, We expect home to return to profitability in the second half of the year and to be around breakeven for the full year. This is what I wanted to cover regarding the business and operational performance. I will now hand over to Stephan. I will tell us more about financial performance for the first quarter of 2018. Yes, thank you, Eric, and hello, everyone. Let me now tell to Page 11, where you can see the adjusted EBITDA bridge. So the adjusted gross margin, when you look at it as a percentage of sales, decreased by 110 basis points in the first quarter compared to last year. That was mainly due to a lower sales level. Our price erosion, we saw it declining and slowing down. And it was partly offset by ongoing procurement savings, although at a lower level that we previously so. When you look at the indirect cost, we improved by EUR 38,000,000, excluding currency effects. So strong performance there. And finally, we had negative impact from FX. This is due to the further devaluations of currencies like the Indian rupee, the Indonesian rupee, Ardentine and peso and Canadian dollar in particular. And these evaluations were not able to offset the favorable impact that continue to see from the Chinese room India to some extent also the U. S. Dollar. Let's now turn to the next page on indirect cost. You can see on this slide, the year on year development of our adjusted indirect cost base, which was 33.2% in the first quarter of 18. This is a 60 basis point reduction compared to the same period of last year, despite also the lower sales. And we clearly see the impact of the many cost reduction initiatives that we implement across the company. This enabled us to achieve EUR 38,000,000 of savings in indirect cost without the Forex effect. And overall, we have reduced by 13% our indirect cost base compared to a year ago. Of course Forex positively impacted the adjusted indirect cost base by the amount of EUR 35,000,000. We continue to implement, our multi year transformation initiatives in order to simplify our organization, be able to improve our customer service and quality, be able to be more efficient, to capture also scale benefits and be able also to reinvest in growth. We expect these initiatives to allow us continue to reduce our indirect cost base over the coming quarters and to reach a level of indirect costs at or below 29% by 2019. Let's now take a look at the working capital of the first quarter on the next page. Here again, another strong performance in the first quarter, When you compare with the same period of last year, the working capital decreased by EUR 105,000,000 and it was EUR 612,000,000 at the end of March, and that represents 9% of sales. In the first quarter of 2018. This improvement compared to a year ago is mainly due to lower receivable where we had a very collection activity in the first quarter and also a reduction in the inventory of EUR 25,000,000. As a percentage of sales, our inventories increased slightly by 30 basis points. After a very sharp reduction of our working capital and a strong free cash flow in the 4th quarter, This is another solid working capital performance in the first quarter. It allowed us to improve our free cash flow compared to the first quarter of 2017 if we include the real estate proceeds of EUR 19,000,000 that we benefited last year. Turning to the next Page 14, on net debt, you can see that our net debt level increased by 1,000,000 compared to the end of 2017. Of course, next to the profit that we generated during the quarter, and also the change in in capital that I have just mentioned. You can see here the other items in the bridge that impacted our cash and therefore our debt. Our net CapEx was 21,000,000 in the quarter, which is a bit lower than last year, and we've been very tightly managing our CapEx. Change in provision was EUR 5,000,000. And next to that, we paid EUR 40,000,000 for tax and interest. We also repurchased shares Royal Phillips, the run amount of 1,000,000 as part of the 4th sell down, which took place at the end of February. All in all, this increased our net debt position to EUR 435,000,000 at the end of the first quarter of 2018. Let me now hand back to Eric for the last part of the presentation. Thank you, Stephan. Let's turn to Slide 16. So to summarize, as we indicated in January, Q1 marked a soft start of the year. This is mainly due to a weak performance in home. While at the same time, we continue to improve profitability in the other 3 businesses. We also made good progress in reducing our indirect cost base and we improve our underlying free cash flow after a strong fourth quarter. With respect to our outlook, So we aim to deliver positive comparable sales growth for the full year on the basis of a strong second half. Next to that, we aim to improve our adjusted EBITDA margin from 9.6% to at 10% to 10.5%, and we will continue to focus on cost reduction initiatives. Based on that, we expect to generate solid free cash flow into 2018, which is as well already flagged in January, expected to be somewhat lower than the level in 2017 due to higher restructuring payments. Restructuring costs for the year are expected to come at the high end of a targeted range of 1.5% to 2% of sales if we take into account the costs related to the company name change. For the second quarter, we expect the restructuring costs to be at a similar level as we have seen in Q1. So with that, I would like to open the call for questions, which Stefan and I are happy to answer. Thank you. Thank you. Limit yourself And our first question comes from the line of Denis Stinklemeyer of Goldman Sachs. Please go ahead. Your line is now open. Sorry. Please bear with us one moment. We seem to be having a technical issue. Mr. Daniel Meyer. Please bear with me one moment. Please, you can now go ahead and ask your question. Mr. Dinkl Mayor, you may go ahead and ask your question. Please go ahead. Hi, it's Daniela here actually from Goldman. Sorry. I have one question and one follow-up. To start up on the on your point about meeting, keeping the guidance on the 10% to 10.5% and talking about sort of indirect cost savings accelerating in the second half. I think if one sort of does the math roughly, you need $100,000,000 incremental EBITDA this the next three quarters versus what you had last year, to make up the low end of your guidance. Can you talk through what you see on indirect costs and then why you're confident on that to keep the margin guidance where it is. I'll start with this and then I ask a follow-up. Yes, sure. Daniel, let me take that one. So, yeah, we've always said for the last few quarters that the regulation of our indirect cost is a core part of our outlook and the core part of our guidance for 2019. And we have taken a lot of actions as we have commented the service achievement. If you take into account also the Forex effect, we are at 1,000,000 more than 1,000,000 reduction. Very clearly, the trend is there for us to be able to deliver as you mentioned, above EUR 100,000,000 reduction. We're going to continue that every quarter, and we indicated at the beginning of the year that we expected that the trend would even increase in the 2nd half as we see even a higher impact of everything that we have started towards implemented towards the end of 2017 and also in the first quarter. So yes, that's a very important element of the outlook and of the guidance midterm. Okay. It would be good to have a bit more detailed color on that. But anyway, I'll move to my follow-up question. On your confidence on organic growth guidance for this year. And Eric mentioned just in his speech that this was a counting on an acceleration in the second half. How much visibility do you have on this? Is there a large project? Is there something that gives you the confidence? Yes, good morning, Daniel. So As you can imagine, we looked at that very, very specifically. We did a refocus in detail in the past in the past weeks, what we see at this point in time, we see that Q2 will still be affected by home. And I can go into more details, you know, later down the track about the situation there and why I'm saying that. But we see a very strong Q3 and we see a strong Q4 on the basis of a few things. The ongoing improvement in the businesses. So you see that the other 3 businesses are performing well and according to the strategy objectives, we believe that Home will resume also its performance on growth in Q3 and very much so in Q4. We have also the hydrogen ban in September. As you know, after 15th September, we basically cannot produce anymore. We can still sell our inventories, but we cannot produce anymore. So there will be stock building by our customers from the halogen dam. So that will have an impact on sales in Q3. And we have in some regions of the world and specifically, Saudi as much as I don't see any improvement in the underlying trend, in the economy of Saudi. I was there a few weeks ago. But we have secured some projects, 3 projects of interesting projects with very selected customers, as you know, one of the very important elements for us, and so he is to get paid. So we're very selective in the businesses that we take. And, you know, quite important projects that we believe are going to improve our position there and in H2. So the visibility that we have at this point in time is still a case which is going to be affected, a very strong Q3 and a good Q4. Thank you. Our next question comes from the line of Alok Katri of Societe Generale. Hi, thanks. My follow-up just on the guidance side of things. I mean, if you could just talk through particularly at PG Home, in terms of how the quarter sort of shaped up as well across the month. This clearly, you've been sort of obviously flagging that there's destocking still continue in the second quarter as well. Maybe, I mean, what is the confidence behind, let's say, this return to normal levels of growth. And when we think normal, I mean, what sort of normal levels of growth we should see because this is really very volatile. And then the other question, of course, in terms main question was, if you could just talk a little bit about the U. S. And professional markets over there. Any signs that you're seeing in terms of recovery at all? Because none of your peers are any particularly positive on the U. S. Lighting market. So maybe if you just talk about the dynamics over there, that would be great. So on the home, so let me try to go back in time and explain why we are there. And how we see that business moving forward. There were a lot of expectations in Q4 And if I zoom specifically on the US, because this is where, the major impact is. We have to understand that for home system business, the U. S. Is a big proportion of that business worldwide. We are selling to important trade partners, important retailers. Online offline. So they had a plan to grow extremely aggressively in Q4. We followed them with their plans. You know, the way we follow, well, we make sure that we have the available products. And as you can remember, that's one of the issue we had in 2016 when we didn't have enough products available. So I think they wanted also to make sure that in 2017, they would not have any shortage in terms of products. So that probably has not had. So they had big plans. We supported them in marketing activities. And then we realized that they would not make their plans, but you are making the inventory for Q4 basically in September and October and actually in November. So that was done. We realized, because October was very strong. November was very strong. December was stronger, less. And then in January, January started to be very soft. So we analyzed a bit more the at that point in time. This is why we came at the end of Q4 when we announced our full year results, we said that the quarter would be soft. Than going into more details because once again, we have different customers that we're talking to and there were very different situations. With the inventories that were for that specific business. So we're talking about home systems, inventories going between 9 to 18 weeks, which to give you a hint, a healthy inventory in the trade is around 8 weeks. So they had built that inventory and our number one priority in Q1 was to make sure that that inventory would reduce. And to be also very specific, and that's also one part of your question. The selling out in Q1 for those customers has been good. It has been, again, a strong double digit selling out. So the selling out is there. Now there's another element. In Q4, is two times in volume Q1. So when you have an overshoot in Q4 and you build up inventory, then it takes a big proportion on what your business is in Q1. So this is in a nutshell, what has happened Now what makes us confident? So first of all, there's no structural issue on that business. Are there. We continue to innovate by bringing to the market a full connected offer, not only for the inside of the home, but now for the garden, which was much awaited by customer that were asking us when we would be able to provide, you know, a compatible offer for the outdoors. So this is now done. It's going to be launched in Q2. So that's one thing. The second thing is the selling out is healthy. So it's going to take a bit of time so that inventories are back into healthy position. And then we see the business continuing to grow, to give also another hint. We made a lot of investments for the growth plan that we had last year. You have a carryover effect also on the investment that you have done during the year and all that is happening in Q1 on the base of a lower top line and then it doesn't help the bottom line as you have seen it. So I'm going to be very frank and direct. I'm not fied and happy by the performance we had in home, it's probably a bit worse than what we had imagined when we talked to you last time, nevertheless, I'm confident on the potential of that business moving forward. And this is the plan we have in order to in order to recover. Now that business needs to grow double digit in order to be profitable. So that's what we see happening and especially in the second half of the year. Yes. Sorry, I was a bit long on home, but I think this deserves some explanations. Let me now answer your question on U. S. Brass. Do we see any sign of recovery on the market? The answer is no, not in Q1. So we still see the same trend on the project that are low to mid sized. What we've seen also in Q1 as a negative trend is the market and the public market, especially when it comes to Road And Street, which is a big part of what we do. We are a very, very much oriented towards the outdoor part of the portfolio in the professional parts of the business. So we've seen that market slowing down in Q1. Nevertheless, when we look at the performance of our professional business, it, of course, includes performance that we have in the U. S. And you've seen that we're growing, not only the top line, but we're also growing very healthy see the bottom line or in line with the plans that we had originally by 310 basis points for Q1. Yes, is that sort of, then we should think about that as more Europe, sort of led and how sustainable then should that growth profile philosophy? And I'll leave it there. Thanks. Europe has been consistently strong, except UK and Ireland. China has been very strong as well as the rest of the world, and I would put aside of course Saudi that I've already talked about. Thanks. Thank you. Our next question comes from the line of Martin Wilkie of. Please go ahead. Your line is now open. Yes, good morning. Thanks for Martin at Citi. Just the first question coming back to the tree at in the channels. I mean, obviously, there are a big volume impact there. Do you take any inventory risk in terms of pricing? I mean, there were some council, we saw certain retailers on the hue products running up to Christmas. I just wanted to work out, if the impact you had was purely on the volume side or if you also retain some pricing risk on the inventory, that is in the channels. And the second follow-up question, you mentioned you need to grow at double digit also said that the sellout is healthy in the quarter. So even though you're going to see an ongoing drag in Q2 as it destocks, is the sell out still at the double digit rate that you need to get to in the second half? Yes, absolutely. Let me start with the second question. Yes, we need to continue to see a double digit sellout And with marketing activity, we are also helping that sellout. And that's the way we work with these big retailers. No, on your first question, there's no specific risk, which is retained in the pricing of the inventory that customers have built up. That's not the way we work. Okay. So it's purely a volume impact from your perspective? Absolutely. Our next question comes from the line of Alexander Virgo of Bank of America Merrill Lynch. Wondered if you could just do a little bit more on home for giving me for going back to it. But could you maybe characterize how much of Q4 growth was therefore inflated, because it sounds to me like, the 50, what, 54 percent growth in Q4 was probably over or unreflective of the underlying demand. And then perhaps talk a little bit about the visibility because I guess, your comment at the end there in previous furnation about being a little bit weaker than you had expected. It sounds to me like it got a lot weaker than you expected. So I just wonder if you could talk about the visibility that you on your first question, it's a very difficult thing to say at this point in time because it depends on many different factors. I mean, different customer So I don't have any concrete answer. And also it depends on the dynamic that you see in the upcoming quarter. But there's one element which is very important to consider which I've already talked about. Q4 is 2 times Q1. In general. And there was an expectation from these customers to go much beyond what has already been achieved and which was a great growth if you look at our growth in Q4. So they decided to go for the big game. Let's cut it like that. We had plans to achieve it and it didn't happen now. Maturity, we don't have a very precise number to give. So our visibility on the matter was in the following way. So we understood that October was strong. November was very strong. December was a bit weaker. So that was the first team. So we looked into it and the beginning of the year was also soft, but on the back of a lot of different festive activities around the world. So there was still some some traction there. But then we realized that we would be facing a softer situation in Q1. Then at the end of Q1, I would say, at the end of January or beginning of February, we started to investigate and go back to our customers to understand what actually was going on. And I can give you more precise examples. Some of those customers online, it's easier that the offline, they have thousands of retail points. So we need to have the information of what was going all over the place. And on a very specific case, when you look at our customer, they had a very strong smart home business in Q4, pretty much in line with what the target was. The lighting piece was not. So it that didn't proactively came to us telling us, hey, there's something happening on the lighting business because overall, the smartphone business was moving in the expected direction, but the light sync piece was lower than expectation. So it took us probably after the beginning of February, close to 4 to 5 weeks and to really go into the details and have a good evaluation of what was going on. So this is what happened. We discovered moving in the quarter. Now as I've said before, I'm not happy about it. I think we should have seen that faster. That's the message that we'll give into the teams. And if we have from this situation an important learning, what infinix pricing is when we have businesses that don't go well or businesses that go too well, we need to equally watch both of them. And probably that our attention was more on other businesses that needed improvement than on the home. And I would say the home system part of the business that was flying at this point in time. But this is how the events occurred all along the quarter. Okay. Thanks, Eric. And maybe just as the follow-up then, when you talk about Q2 being still affect expected and growth normalizing in the second half, would it be fair to assume that the business at home will still decline in Q2 or would it be more flattish And then obviously, you've got a meaningful step up in comparative growth in the second half, 45% 54%, respectively, Q3 and Q4. Would we, you're talking double digit growth on those comps. Is that right? Yes. We don't see home declining in Q2. We see home growing in Q2, but not at the level that we originally know in our target. Okay. So there will be an improvement in home, Q1, Q2, that's just Q1. But still not at the level where we business where we believe that that business needs to be. Thank you. Our next question comes from the line of Svennoyer of UBS. Go ahead. Your line is now open. Yes, thank you and good morning from my side. My first question is actually on the LED component part of business and where you are also supplying other people. Is your observation that maybe the destocking that you saw from your customer there has now come to an end and has normalized, that would be my first question. The on the LED electronics, the situation that we see is still a very soft market when it comes to our Tier 1 customers, namely cut a long story short, the big Luminale manufacturers. On the other hand, we had stated goal and to develop also our business strongly to Tier 2 and Tier 3 customers And if I'm simplistic, these are the smaller laminar manufacturers. So what we see, we see that we have from still a lower base, a very dynamic growth when it comes to those Tier 2 and Tier 3 customers. But we are enjoying much less growth than originally expected on the Tier 1 cash demand. So that's the situation. We haven't seen any improvement in Q1 versus what we did experience in the previous quarters. And this is what we had guided for. So it has continued basically in Q1. And is that also because of more competition from lower costs competitors? Or is it just purely related to the soft in the market? I think, Sven, this is a very good question. And I believe there's a bit of both, but certainly that we see a new low cost entrants on the luminess side of the business, which are challenging probably, you know, established and historical players and coming with fully integrated luminance, meaning that you have not only the Luminess, the LED engine, but also the driver, what we could components, in it. And that has an impact on the original way of doing business. We're looking very specifically at that situation today and we're doing a lot of strategy deep dives to understand what's happening on the market and who are the involved actors. And we are preparing a set of action initiatives in order to be able to to intervene when and wherever necessary. But this is something that we're looking at this point in time. If you ask me today without being able to give you a very clear indication in terms of or quantitative, quantitative information, I believe there's a bit of both market softness on one hand but also some of the market share taken at the low end of the market by new entrants in the early days. And the second follow-up question I had was on your LED chip procurement. So where you are the tier 1 customer to your suppliers, has your behavior changed there? Have how is your stocking situation on LED chips? Do you feel you can destock yourself? And how do you see pricing evolving at the moment? Because there's been some talks about price reductions from the Chinese suppliers, for example, are you seeing that spreading also to the suppliers like Luminess? That would be my second question. Thank you. So on the cheap side, you have 2 different situations, you have the high power, which has shrunk quite a beach in the compared to what it used to be a few years ago. And you have a median power LEDs and also low power LEDs, which are taking the biggest part of our procurement volume and response in time. I think know, we have worked fairly well on the management of our suppliers when it comes to cheap manufacturers. So we are concentrating our volumes on some strategic suppliers, working with them, not only on a pure customer to supply base, but also co designing with them in order to be able to achieve together some of the desired performance that we believe we need to be able to compete and bring promise to our customers. So we're doing that quite well. We are still enjoying, at this point in time, price decrease on the chips, but much less than what's happening previously doing 2 things. So first of all, co designing and making sure that we have the right product for us and then committing on volume to those customers and also by selecting them very, very sharply based on the capabilities for different applications that we need. So that's one part of the business that runs pretty well. At the same time, we had a big volume to sell. So We are an important actor and that helps us to have the right supplier base. So that's very specific a factor that would be of material. But there's no change on your behalf in terms of your procurement that you have slowed it down or any change on your procurement behavior in general? No, no, on the contrary, if you look in volume and this is still going up. Okay. I was just wondering as a side effect maybe of the slower business elsewhere that this could have happened. Our next question comes from the line of Peter Riley of Jefferies. Please go ahead and ask your Good morning. I've got one and a follow-up please. Firstly, on your LED business, growth rate continues to slow. Know some of that is the LED electronics, but can you tell us if all your all countries are still showing growth in LED lamps or whether any of those markets have become mature and started to shrink? And then secondly, on the follow-up, you mentioned that your U. S. Professional business, a lot of it is road and street Do you know what the penetration is now of LEDs and the installed banks per street lights in the U. S, I guess, is going up fairly rapidly? Because my assumption is at some stage that reaches maturity and then you have a very long period when the market is very soft. Maybe you could talk about those 2 issues please and help us understand the trends. When it comes to the LED business, so we so the LED business has got 2 components. As you know, one is LED electronics, less than half of the business and the other one is LED lamps. LED electronics is flat, as I've mentioned it before. So LED lamps is growing in Q1. And we have to put that in perspective of the high base of comparison in Q1 2017 and specifically in the region of Asia to mention it's India in a way we were taking big projects in terms of early demands. So we knew that the base of comparison, and this is what we also highlighted, in the previous announcements would be strong for HD lamps. Now we see a glimpse growing in all the countries where we operate. I would say there may be one specific example, but otherwise we see still LED lamps growing in all the geographies. Of course, as we've mentioned before, in markets where, the penetration of an event is high. We see less growth than in the markets where the AD penetration is lower. In Northern Europe, we have less growth in LED because the penetration rate is much higher then you would have in some emerging countries that have been moving to LED later. But that's the same comment as what we have said as we have said previously. On the professional side of the business, Look, I'm going to give you, at the top of my head, a statistics on street lighting. We believe that between 15% to 20% max of the existing street light poles on the planet have been updated with, you know, LED Energy Efficient lighting. We count, but it's no statistic, Peter. So maybe it has evolved, but at the top of my mind, we talk about 300,000,000 light poles on the planet. And probably 15% to 20% of them in mature countries as a max, have been have moved to LEDs. So you see the potential is still extremely strong and high. And when you talk about connectivity, it's even less. It's probably less than 3%. Do you have that number for the States? I mean, the reason I'm asking is, obviously, professional business has had problems. And my guess would be that the penetration is much higher than 15%, 20% in the U. S. And therefore, you get stage relatively soon where the market actually starts to, starts to go into decline because when you get to, I don't know, over 7% to 80% there, it includes the market's going to be a lot smaller. So do you know what the penetration rate is in the States? No, Peter, I don't know it at the top of my mind. My guess is that it's certainly lower than Europe. And I would not share that view. I think that there's a lot to do still in the U. S. When it comes to street and street and road lighting. I see that the conversion there is now happening, but it hasn't been as fast as what we've seen in Europe. Thank you. Our next question comes from the line of Peter Olofsen of Kepler Cheuvreux. Thank you. I had a question on the pricing trend and the cost of goods sold trend because I think they are largely linked In the press release, you mentioned that the price erosion is flowing. Is that mainly in the LED segment, or do you also see it in other segments? And it seems that the cost of goods sold reduction is getting more moderate. Can you confirm it's indeed becoming more difficult to reduce the bill of material? Thank you. Yes, so Peter, let me take that one. So on the price reduction, indeed, I think we've mentioned that already in Q4, but in Q1, we have also seen on the LED lamp side, a slowdown of the price decrease. So we see that continuing and we expect this to continue. And I think we've mentioned that a few times. When you look at the bridge and the overall price effect, it's still relatively high. We've seen in profit some increased price pressure. So the slowdown of price reduction in LED has been unfortunately somewhat compensated by some higher price reductions that we have seen, especially in professional. Going to the cost of goods sold, which includes bill of material and productivity. Yes, the in Q1, the overall amount that we saved is lower than what we used to save every quarter. I think we have always indicated that especially in LED, as we see less volume growth and also as the technology matures, there will be less savings extracted from the bit of material, and that's going to come pretty much in sync also with the lower price reduction. And this is exactly what we see happening. Now in Q1 is always a bit of a lower quarter when it comes to overall bill of material savings compared to the other quarters. And then finally, because of the low volumes, that affected our overall productivity and where we usually enjoy some positive productivity effect here, there were some negative productivity effects. So that explains why that one is a bit smaller compared to what we used to have. Okay. And then maybe to clarify what you said on professional that there's a bit more price erosion than you saw before. Is that mainly on the lower end? And is that due to imports from from Asia into Europe and the U. S? Or what's driving that? So, yes, first, it's pretty much we pretty much see that on the lower end product range in the LED, of course. It's we believe pretty much driven as well by the Chinese imports or Chinese players acting on those markets and we see it at this stage more in the U. S. Than in Europe. Okay. That's helpful. Then maybe a follow-up on the home. You said that your trade partners So their overall smart home business in line with expectations in Q4, but that the lighting part fell short. What conclusion do you draw from that? Do you need to better educate the end consumer about the benefits of your product, will you have to adjust a pricing? Yes, basically what's the implication from that shortfall of lighting within the overall smart home category? So there are 2 conclusions. The first one is, I think that their objectives for the lighting was extremely ambitious. And you know, in this respective, too ambitious, that doesn't mean that lighting didn't sell. You know, lighting, I mean, we sold a lot and they sold a lot. But they had even higher expectations. But we saw not all of them, I was really mentioning one very specifically. What we also saw is that in Q4, a lot of offers came on the market for, smart home and security in smart home. And I believe that as much as that didn't reach their objectives. That was a very, very high one for lighting. They probably sold more than what they had it in security for the smart home. So these are the 2 learnings from what happened Now just to be clear, we cannot talk about an actual shortfall in the lighting business because the growth was redely. It's just that they had even higher ambition. Thank you. Our next question comes from the line of Mark Swabsenburg of ING. Please go ahead. Your line is open. Yes, thanks for taking my questions. I have a question about profit. You mentioned the 3 larger keeping in in the second half. Can you give us an indication, if you will, then reach double digit growth in the division? Can you perhaps give a bit more detail on how we think about the growth and margins in both in the second half. That's my question. No, not, we're not specifically commenting, you know, by business and such a specific guidance for the year, but you look at the improvement trend of profit. So we want to continue to move that business towards the guidance that we have given for the midterm. And we believe that that business we see, a strong Q3 and again, a good Q4, we are not specifically giving number by business and by the year. But as you can see, the trend in Q1 is positive and we continue to be positive on that business for the upcoming quarters. To be fair, on Q1, you see a bit of a slowdown in the trends. And you mentioned also some softness in the U. S. Public market. So somewhere to achieve your, at least 0 percent, comparable sales growth there should be some acceleration in the pork business. So perhaps you can give a bit more color on why we should see an acceleration of growth in the second half and how sizable those projects roughly would add to the growth? The way I look at it, Mark is in the following fashion. So we're going in Q1. Above 3%. We still have a negative impact of Saudi. It is also a business which has a component, which is declining, which is the conventional part of the professional business. So despite that, you know, we're growing. And I think that's a reasonable level of growth for that type of business. While at the same time, which is extremely important to us, we are in proving on the bottom line. And it's an improvement of 3 ten basis points. And we have to look at it quarter to quarter. And we were expecting, and we're expecting not only Q1, but also H1 to provide an improved performance from a bottom line perspective. And this is what is happening in Q1. So this is why we see this as being a good start. I agree on the margin, but they're more referring to your guidance on your top line at least 0, while see the trend in home, somewhere we need some compensation. So that's, and the trend, to be fair, although conventional down year over year is still growing, the trend came on, say, mid to high single digits to, to say, low single digits, and, and, there have been some arising on the public side, there should be some compensation and from something else to make you comfortable with your full year guidance on the top line. And that's why I would to have a bit more color on what we can expect for growth in the second half of the year? What you see in terms of Yes, Mark, we're giving Yeah, Marco, we're giving a full year guidance on the company. We're not giving it by businesses. And I've explained, you know, the mechanism that we have when it comes to the top line, we need to have a compensation of the decline of lamps, with the other businesses. And we need a strong home we need a good idea and we need a good, and we need a good, a good professional. And when that doesn't happen, because one of the cylinder is not really delivering what's expected, then we have issues, and this is what we've seen in Q1. But once again, the plan that we have, and I'm going to come back to that, and we are not giving a clear indication by business is because we don't do this, but it's still somewhat an impact in Q2. A very strong Q3 and a strong Q4. This is what we see and what makes us believe and remain confident in the outlook that we have given from a top line perspective, which is that the company will be growing in 2018. Maybe then a follow-up, can you give us also impact from Avix on your EBITDA margin in Q1, what the exact impact was from ForEx on the EBITDA margin? So yes, so it's, as you saw from the bridge, it's 1,000,000. So when you take into account negative 1,000,000, And I explained on that page that was largely related to a lot of the currency devaluations compared to last year. When you look at the sales impact, it was EUR 120,000,000. So when you look at the margin, it was 30 basis points. So it means if we had been at the same ForEx, the margin drop compared to last year would have been 20 point and then Forex added 30 basis points. From the line of Tim Schiller of ABN AMRO. Please go ahead. Your line is line is now open. Yes, good morning. Wim Siler, ABN AMRO. I got two questions indeed. First of all, you indicated that the sell out in the channel in home was double digits, but that's still kind of a very vague statement compared to the north of 30, 40% that you generated in sales in the last quarters. So you gave be a bit more specific what the sell out in the channel was in the fourth quarter of last year and in the first quarter of this year. To give us a bit of a feeling where the underlying market really is. And the second question that I have is on the restructuring charges. You had quite a bit of restructuring charges in the first quarter. I think it was 1,000,000. Sorry, 1,000,000 You indicated that you expect a similar amount in the second quarter. Can you give us a bit of feeling where we should end up for the full year? Yes, let me take the sellout question and Stefan will take the restructuring 1. Let's not talk about Q4, but let's talk about Q1 because this is what matters linked to the reduction of inventory. The sellout that we see at our customers at this point in time is very close to the number that you have stated. So 30% ish? Yeah, you said 30 to 40%. Okay, thank you. Thank you. Our next question I'm sorry, just to answer your question on restructuring, Bill. So as you saw, we took 1,000,000 in the first quarter. A large part of it is related to the closing of our Acan factory in Germany, which is related to Allogene. So and that will happen in the second half of the year, but we took the charge in Q1. And then there was a few other charges that we took related to our cost reduction programs. We've indicated and Eric mentioned that in the presentation that we expect in Q2 to book in our P and L restructuring amount, which is probably around the same level as in Q1. And then for the whole year, We intend to be around the same level in absolute value compared to last year in terms of P and L impact. That is within the range of the 1.5% to 2%. So it means that in the 2nd half compared to last year, we will have less restructuring charge because a lot will have been booked in Q1 and in Q2. This is what we see at this stage. With effective restructuring. Okay. And just to be completely, clear, what was the number of restructuring charges in 2017? It was 1,000,000. Alright. Thank you very much. Thank you very much. We will now go to our last question from the line of Andreas Willey of JPMorgan Casinos. Please go ahead. Your line is now open. Yes, good morning, gentlemen. Just a quick follow-up question on home. Is there a technology shift happening in the market in terms of, we've seen some competitors launch connected lighting products that don't need the bridge that are simpler with fewer functionality where you directly link the bulk to basically the Wi Fi and your app on the phone and you don't need a bridge, but also you then don't have some of the the capabilities as well is that a shift within the market to kind of simple connected lighting that's impacting the business well? And then the second question on home, I assume most people that buy the home product and download the HU product and download the shouldn't that allow you to give a very almost kind of day by day tracking of what's happening in terms of real end demand? So I'm a bit surprised it basically took until March to see the full extent of the slowdown given that the product should be connected to your app when customers actually buy and install them? Morning, Andreas. Let me answer to the two questions. It's not a major technology shift, meaning that the whole market goes towards a direct and easier connectivity directly with the phone. So we see it And we see it more important in Asia than in Europe. We think that this is a trend, which is more acute. In this part of the world. So we are working on it. We also believe that the direct connection to the phone and it's a Bluetooth connection. I've got advantages and drawback. So it seems effectively simpler, but it means that you systematically need to use your phone in order to activate your lighting, what at the same time you are more limited in terms of functionality that you can drive out from the system. So let me give you a very specific hint and something that we believe in. We believe that at one stage, people do not want to systematically rely on the smart device, whether it is a phone, which is a tablet, and to modify the light settings. So this is why we have also a battery less switches This is why we have motion sensors that are helping in terms of, you know, making sure that whenever you want to have seen in your kitchen. I mean, you don't need to go back to your, to your smart device and activate it. You can activate it pushing on the switch. So you've programmed the scenes and then you can activate them simply. And moving forward, we believe that the less we can use technology to have the light team to adapt to whatever you want to do is the right trend. So it's not a technology shift, it's another need from the customers and we are seriously looking into it. But we think that it's not one or the other. It's probably both. And what we have started to do with the solidity of the architecture that we have because what we need to understand is that you have the breach. And on one side, it's an open API that allows a third party app developers to create apps and that has been a big part of the success. And on the other side of the breach, is the wireless connectivity to the lamp and the possibility to command all the lamps. That architecture is very solid because it's flexible on one side and quite rigid on the other side, protecting against security issues. So I think it's going to be the coexistence of both, and we don't see a major technology shift from that child's disappointing time and we're looking into it. It is impossible for us, through the you app to do what you are suggesting. You know, we don't know where people buy anyway. So it's not because they have a product that it actually indicates where that product was bought. It depends where people actually connect the product and we don't have this type of intelligent at this point in time that we'd be able to very precisely indicate where products are both and where they are installed. So we don't do that. But where you are right, is that we should have seen that earlier. And the only way for us to have been able to do that and see the trend earlier was to be closer to our customers and especially the big ones that I've been mentioning, getting information on their, on their, on their inventory situation. Once again, this is a learning, but that could not be done digitally through the app. We should have been closer to these customers to understand the trend quicker that's a fact. Thank you very much for your time. Thanks. Thank you very much. And I'd now like to return the call to our speakers. Yes, thank you very much, operator. Thank you everybody for attending the call and for your for your questions and we're looking forward to the following interaction in the coming months. Have a nice day. Ladies and gentlemen, this concludes today's conference call. Thank you all very much for attending. You may now disconnect your lines.