Earnings Call: Q2 2017

Jul 21, 2017

Ladies and gentlemen, welcome to the Phillips Lighting Analyst Conference Call. For the first part of this call, all participants will be in a listen only mode and afterward there will be a question and answer session. Please note that you are limited to one question and a follow-up per round would now like to give the floor to Ruben Jonsen, Head of the Investor Relations. Ms. Jonsen, please begin your meeting. Thank you, and good morning, everyone, and welcome to the Phillips Lighting Analyst And Investor Conference Call for the second quarter 2017 results. With me are Eric Gold Miller, CEO for the Tliqing and Stephane Goujon, CFO. At the moment, Eric will give you an update about our is an operational performance, after which Stephan will take you through the second quarter financial performance. Eric will then tell you more about the outlook for 2017 and wrap up. After that, we will be happy to answer your questions. Our press release and related slide deck were published at 7 amc18 this morning both documents are now available for download from our Investor Relations website. A full transcript of the conference call will be made available as soon as possible on our Investor Relations website. With that, I will now hand over to Erica. Thank you, Robin. Good morning, everyone, and thank you for joining us today. So, let's go to slide 3. We delivered a solid performance both on the topline as well as on pro EBITDA in the second quarter. Comparable sales declined by 1.8% due to the ongoing decline in the conventional IT market, which was actually offset by robust growth in LED and connected lighting systems. Business Group's LED and home achieved double digit growth, total LED based sales lead by 14%. LED that sales narrowed to 63% of total sales compared to 53% in Q2 last year. Europe delivered robust growth with a continued solid performance in the dynamics, Germany and Iberia the Americas and the Middle East Kentucky continue to be impacted by softer market conditions. In professional, we were impacted by the high comparison base in the second quarter of 2016 due to a large project in Asia Pacific. In the quarter, the adjusted margin increased to 10.2 percent, including a 1 off real estate gain of 1,000,000 in home. Excluding this gain, the adjusted EBITDA margin improved to 9.4%. Net income improved from 50 1,000,000 to 1,000,000. Free cash flow decreased from 1,000,000 to minus 1,000,000 reflecting an increase in inventories in home and MD specifically to support and simplify growth in the second half of the year. On slide 4, you can see an overview of the financial performance by business group. Each business contributed to the improvement of the adjusted EBITDA margin. Total adjusted EBITDA increased by 1,000,000 and we are pleased to see that business with LED professional and home compensated as the absolute decline in profitability, in lamps. This becomes even more evident when we move, to slide number 5. So this slide shows the contribution to the profitability improvement of each individual group. As you can see, increasing profitability in the professional and home more than offset the decreasing profit contribution of lands as size continues to shrink. Excluding the million real estate gain from, we increased our adjusted EBITDA margin by 10 basis points in the second quarter. Let me now quickly look you through our business groups starting on Slide 6, these ones. Cooperators have declined by 18.2% due to the ongoing transition to MDI team. We estimate that the conventional IT market continue to implement faster in the range between 23% to 24%, which results in market share gains. Despite the high decline in top line, NAMS was able to sustain a high level of profitability. Once again, at 20.7%. So this clearly reflects the success of our last man and standing strategy. Let me now continue with LED on the next slide. Evolution will grow significantly and the margin continued to improve, which is clearly showing that the actions we implemented about a year ago up payment. In the second quarter, comparable sales increased by 20.9%, driven by significant volume growth, which was partly offset by lower selling prices and stronger growth in affordable products. All regions contributed to the growth over, we noticed that countries with low energy penetration rates showed higher growth. The adjusted EBITDA margin improved by 220 basis points to 10.6% in Q2, driven by operational leverage and procurement savings, offsetting price reductions and wage impact. Let's now move on to professional on slide 8. In professional comparable sales declined by 2.7%. This decline reflects a high base of comparison due to a large project in Asia Pacific as well as the situation in Saudi Arabia that negatively impacted sales growth by 180 basis points driver in the first half of twenty seventeen and continue to deliver solid double digit growth. Performance in Europe and Greater China remains strong when market conditions in the United States continue to be soft in particular for small to medium sized projects. However, The backlog for larger projects in the United States specifically continues to be strong and is expected to positively impact comparable sales growth and the adjusted EBITDA margin in the second half of the year. The adjusted EBITDA margin improved by 50 basis points to 0.2%, driven by procurement savings and mix improvements. Restructuring costs amounted to 1,000,000 related to the ongoing rationalization of the manufacturing footprint and indirect cost reduction. Let's now turn to slide number 9. Home and delivered double digit growth in the second quarter of the year and remains on like to be comprehensively for the full year 2017. The CSG of 15.5% were driven by home system and commonly announced and by all the regions. Demand for finished SKU increased significantly in the first half of twenty seventeen, partly because of our strong partnerships with the makers of the recently introduced virtual activated smart home devices. To support the growth of the Phoenix shoe offering, investments, in innovation, investments in marketing, and investments in supply chain will step up as we expect to further drive growth in the second half of the year. The adjusted EBIT margin increased to 8.2% in the quarter. However, excluding the real estate gain of 1,000,000 the adjusted margin improved by 6 percentage points to minus 1.9%. This was driven by with Russian leverage and procurement savings and partially offset by the higher investments in fee to that I already referred to. All in all, Home remains on track to become profitable on a full year basis in 2017, a excluding the impact of the real estate claim. Moving on to Slide 10 now. Solid progress was made overall and in each business group, despite difficult market conditions in markets like the Americas and early in Kentucky. Since performance, in the first half of this year continued to show an improving trend compared to 2015 and also compared to 2016. Once again, excluding the 1,000,000 again, the adjusted EBITDA margin increased to 8.9% in the first half, giving us confidence that we are on track to deliver on our margin target for the year. Free cash flow was minus 1,000,000 in the first half of twenty seventeen, reflecting an increase skin inventories to support the growth in the second half. Let's now look at Slide 11. Where we provide a snapshot of our LED based sales, which grew by 17% to 1,000,000,000 in the first half of twenty seventeen. In the left chart, you can see that our LED base has grew with CAGR of 28% since 2013. And now represents 62% of total sales in H1 2017. The chart on the right and we see that 40% of our LED based sales comes from a business with 88% comes from professional and the front from home. In each business group, we saw double digit comparable sales growth in LED by sales in the first half of twenty seventeen. So, this is what I wanted to cover regarding the business and its operational performance. I will now hand over to fund, who will tell us more about the financial performance for the second quarter of 2017. Turning now to page 13, you can see the adjusted EBITDA bridge. With respect to gross margins, we were enroll again to improve the productivity and also deliver procurement savings across each of our business groups. The adjusted gross margin as a percentage of sales improved by 30 basis points in this quarter compared to last year. Our indirect costs improved by 1,000,000 and that includes the additional investment that we've made to support our growth We also benefited from favorable currency effect and also from the real estate gain in order. On that last point, let me take a moment to explain how we treat incidentals and most notably, we fail at real estate. First, of course, we comply with the accounting DCs of our main shareholder as we are still consolidated in their statements. As a consequence, our adjusted EBITDA includes restructuring cost acquisition rated charges and also other charges and gains above 1,000,000. Once I mentioned earlier, we'll be considering the figures that financials we plan to review these days. Since our goal is to provide clear and accurate information so that we can show our true operational performance we therefore highlight material weakness. In Q1, you remember that the real estate gain of 1,000,000 led by a large equal to a rate of gain in Q1 twenty fifteen. So, the results in Q1 reflected our true underlying operational performance improvement and we improved from 7.1% to 8.4%. In Q2, as we did not have a 3 year material revenues gain in Q2 last year, we also show our Q2 adjusted EBITDA excluding the million real estate gains in Q2. So that will present our true operational interest of equipment from 96%, 39.4%. When it comes to our outlook, it's totally consistent with data approach, The 50 to 100 basis point increase of the adjusted EBITDA margin for the year will reflect a true operational performance improvements without the help of any material run off. This is why we have now excluded from the guidance with million euro gain that were realized in Q2. Finally, when we look at the year to date performance, our adjusted EBITDA to use 120 basis points ahead of last year at the end of June. And as mentioned by Eric earlier, excluding the million real estate gain in Q2. Our year to date adjusted EBITDA margin is 17 basis points ahead of the first half of twenty 15, and that's within the range of our outlook for the year. Turning now to the next page. Page 14, we show the year on year developments of indirect cost base, which was 32.3% in the second quarter of 2017 compared to 32% a year ago. We had the negative impact of currency movements, which increased our cost base by 1,000,000. We continued in Paraguay to implement all because reduction initiatives that we have launched and we have achieved a million savings on indirect cost. This prediction is after the additional investment that we have made to support growth in particular in home systems. For imally, as you know, we are executing a detailed plan to realize our proceedings, for example, in selling expenses in IT and real estate in and in each other. If we look at the reported EBITDA, just to give you an update on our restructuring charges, that support our cost function both for both the gross margin and below the gross margin. In the first half of twenty seventeen, we recovered 1,000,000 of rates returning cost, which is provided by the level of the first half of twenty fifteen. For the remainder of the year, We expect the restructuring cost to be in the range of 1,000,000 to 1,000,000 for the 4th quarter and probably 1,000,000 to 1,000,000 for the fourth quarter of 2017, which will take our overall restructuring cost in the range of $1,000,000 for the year. And this is in line with our guidance between 1.5% to 2% of annual sales. Let me now take a closer look at our working capital position in the second quarter. I am on page 15. And you can see that our working capital decreased by 1 11250 in the middle year on year. At the end of June, it represents 10.9% of sales and this is an improvement of 130 basis points compared to a year ago. This reflects the sustained improvements that we have achieved throughout the Europe and 'sixteen. Compared to the end of the first quarter of 2017, our working capital has increased Although inventories have always been an impact on driver to decrease our working capital, we had higher inventory in LED and in Rome in the 2nd quarter to support the growth that is expected in the second half of the year. Let's now move to our net debt position on Slide 16. Our net debt at the end of June was 1,000,000. And this is an increase of 1,000,000 compared to the end of the first quarter. We had a cash outflow of 1,000,000 more in the quarter which was largely the results of higher inventory in the E and B enrollment that I just talked about. In the quarter, as you know, we also repaid a dividend of 1,000,000 to our shareholders and we invested 1,000,000 in our own into the second play down by your main shareholder. And we'll see a few of the market purchases to cover the obligations and long term incentive plan. That leaves our net debt to a level of $697,000,000 at the Finally, let me give you a bit of an update on our capital allocation policy on Slide 17. Of course, we continue to have a very strict financial discipline in the way we generate and mean the way we use cash, As you know, we are committed to managing our financial ratio and maintaining a financing structure that is compatible with an investment grade profile that includes the disciplined management of balance sheet liabilities. In the second quarter, we paid the dividend. We also will return up to 1,000,000 of shareholders in the period 2017 2018 by far 15 to share disposals and borrowing and shareholders. Up to now, we over the use of 1,000,000 out of the period of 1,000,000. We have also looked at pension situation, and we had an active on derisking strategy, and we always look for opportunities to reduce the cost and the risk associated with the defined benefit plans. Part of this strategy, like many other companies, we intend to reduce our deficit in the US and to contribute approximately $150,000,000 to our U. S. Pension firm over the period 2017, 2019 so that we further reduce the liabilities and lower the cost going forward. The first confirmation of $50,000,000 is planned for the third quarter of 2017. Let me now turn to Eric for the outlook and the conclusion. Thank you Stephan. So, if we turn to slide 20, you would see that we reiterate our outlook for 2017. We are on track to further improve the adjusted EBITDA margin by 50 to 100 basis points, it will 17. However, not that this is excluding the 1,000,000 real estate gain, in home in this quarter as we have already said it. We will continue to deliver solid free cash flow, driven by profitability and working capital improvements. While we are cautioned given the global economic uncertainty, we remain on track to return to positive comparable sales growth in the course of the second half of this year. Now that I have confirmed the outlook, I would also like to highlight two elements that will be performance, but not our outlook for 2017. First of all, we expect an additional gain on the sale of real estate in the third quarter of around 1,000,000 in lamps, which will not affect our adjusted EBITDA margin guidance. Secondly, as most of you probably know, a new tax regime came into effect in India on the 1st July, which is known as the goods and services tax or GST. We welcome this tax refund, but please keep in mind that it is estimated to have a negative impact of around 1,000,000 on our sales in the second half of the year, which again will not affect our growth outlook, so to 'seventeen. With that, I would like to open the call for questions, which are based on here and my friends are happy to question and please note that you're limited to one question per round. And the next question comes first question comes from the line of Andreas Morley, JP Morgan. Please go ahead. Your line is open. Yes, good morning, gentlemen. My question is on cash flow. You mentioned on the call and in the release, the increase in inventory for growth in home and an LED in the second half, should we expect is to be beyond the growth rates we have seen before because these divisions have had good growth rates for a while. So, why is there quite a significant step up in inventory now? Does it mean basically growth rates are expected to increase materially for the year? And should we still expect working capital in terms of the cash flow statement to be a positive contributor then for the full year? As this working capital or the inventory gets shipped in the second half? Yes, Andreas. Good morning. And let me take the question on the increase in inventory and I will let Stephane and take the question about the cash flow. So, what we see so far, we see very clearly at the level of home systems, a growth that is, quite, important for the year. And we expect to see it coming really to life in the 2 last quarters of the year. In that specific business, you know, we run out of capacity, at the end of Q1 and during Q2. So we had to make investments in order to rebuild the capacity and to increase the capacity of the business for the rest of the year. And we have been tuned in Q3 and Q4. So that the maximum also very much in line with the growth intake that we see on voice activated devices of Amazon, Google, and Apple in also coming in that game. Now when it comes to the growth rate, they also have to be compared to where we were last year, you know, because we also grew substantially in those quarters. But for long system, we see a clear, you know, intake and a very, very big potential to grow further. When it comes adding in, we've seen also a high level of growth in those 2 quarters. It was around 16 from 6016.7 in Q1 and the 20.9 in Q2. We are fairly confident in moving forward that we're going to be able to maintain a high level of growth for those businesses. And we need the inventory in order to be able to decided land. We need also to take into account that Q3 that the backend of Q3, but especially in Q4, are very high quarters for us, especially for everything we choose related to consumer businesses. So, this is why we are building on these indentures. Yes. And they are on your question with respect to working job and its contribution to free cash flow for the euro. So, I think we've always said that since the end of last year that in 2015 and in 2016, the reduction of working capital has been a significant contributor to the free cash flow, but we should not expect that moving forward. It would be by the same order of magnitude. Simple effect of the company going back to growth. So from that standpoint, the contribution that was 100,000,000 for a year up to 2015. I don't think people should expect that it's going to be the same type of order of magnitude. Whether it's going to be a positive contribution of we are working in order to be able to get rid of this, but again not as much as before. And then it's going to be done also very much on the level of growth in the 4th quarter if we have a significant growth in the 4th quarter Of course, we won't be able to collect all our receivable by the end of December and it will be collected directly in the first quarter of next year. So that means that the free cash flow, so that will also depend on the end of the year. Thank you. Just to clarify on the inventory build, was that mainly components or did he overproduce in Q2? I did see the benefit profitability in Q2 or not basically. It's components and finished coaches. Thank you. And moving on to the line of Martin Wilsey with Citi. Please go ahead. Your line is open. Thank you. It's Martin from Citi. Just only LED growth and partly in relation to the, the inventory build. You mentioned, I think, last quarter, there were some change in relationships with certain distributors and unions also mentioned in the past that perhaps white label could be part of a new growth strategy I wanted to understand if any of the new distributor relationships were more onerous for you in terms of inventory build in terms of whether you need to essentially hold more of it versus your distributors, or if that's pretty much neutral in terms of how the working capital works? Thanks, Martin. It's pretty much neutral. Now, we are, and we described last time that we're moving into the market of private labels. We've seen that especially on the consumer side of the business that many of the retailers are moving onshore towards credit level and we've been very successful in securing some of those deals. Should recruit, I would say, not only increase our inventory because these are, you know, standard product but potentially can use because of the branding, in different growth states, it's marginal. And if I can just follow-up on that. In terms of those, private label deal, obviously you're not going to disclose profitability and so forth, but does it have a meaningful impact in terms of your margin outlook in terms of that between Philips branding and private label or should we not think of any significant change there? So, they have a $16,000,000 from a gross margin standpoint. A natural level, but they drive business. They help also to dilute, you know, the cost base and they are not that diligent when you go to the margin. Okay, thank you. Thank you. And moving on to the line of David Voss Barclays. Please go ahead. Your line is open. Good morning gents. Thanks for taking my question. A question on the gross margin or the volume mix impact on that gross margin. There's quite a big step change between Q1 and Q2. Volume mix went from 9,000,000 positive to 35,000,000 negative. Was just wondering if you could comment on where that exactly is coming from. Is this just the Lambs division declining in magnitude? Or is this also partly contributed to the FAD division, for example? And of course, if you could quantify that, that would be amazing. Thank you. Yes, sure David, I'll take that one. So, yes, indeed, when you look at our revenue, this quarter compared to last quarter, it's a different trend. You're right. It's essentially due to the land business. We've seen higher unit decrease in land year on year compared to what we've seen in the first quarter. And that has been largely offsetting the lending risk by gain, especially in terms of volatility. That's why, by the way, the total margin on land is still high and slightly improved. The division effect is largely coming from lands, versus Q1. Also, you notice that in the home, of CSG this quarter is a big below of CSG last quarter. So we had a bit of a higher volume in code in Q1 this year or Q1 this year compared to Q1 last year and it's a bit lower than Q2 this year compared to Q2 last but the main driver is within AMS. On LED, we kind of hinted on that one. On LED, we haven't seen that much points between Q1 and Q2 see the very high growth in terms of volume. Perfect. And then actually staying on the same page 13 as my follow-up on the indirect cost side. So moving away from the gross margin, there's also a bit of a step change between Q1 and Q2. What are your ambitions for indirect costs going forward? Is kind of 10,000,000 a quarter of cost out, is that the run rate or can we achieve something materially different from that? Thank you. So, when you look at the past performance, it's been actually higher than this. And then you can't really do this on the quarterly basis because there is also comparison there are some investments for some mean, the true NNE number is of course better than that one. When you look on the full year basis, you probably remember last year, the improvement was closer to $100,000,000 for the year. Our goal is of course to continue to reduce our fixed cost structure and we have taken quite a number of actions in order to deliver this. Q1 was limited. It was 0 although, of course, we are fighting more traditional investment. Should we now expect to see you again from reduction, the 9,000,000, despite additional investment, we plan to see more in Q3 and more in Q4. But yes, this is really on top of our agenda to make sure that we get our fixed cost structure reduced to pull their own and also other potential sales. Perfect. Thanks so much. Thank you. And moving on to the line of Lucia Colier with Morgan Stanley. Please go ahead. Your line is open. Hi, good morning gentlemen. My first question actually is around the professional business and you stated very clearly you have high expectations of this business in the in the second half despite the market being relatively soft in North America. So my question is how you know what is the level of condition or you know the evidence that you have that those projects that you're expecting will take place in the second half and how much of the I would say the top half of your guidance is linked to this conviction or to this expectation around the professional business? That's question number 1. Yes. As we said, at the end of Q1, it's somewhat the level of conviction because these are projects that we took in order intake in Q1. And these are projects that are going to be delivered in the course of Q3 and Q4 of 2017. So, to backlog that we have already taken and that we need now to convert to in revenue by delivering and installing the goods into 24. Sorry, just to my question on how much the top half of your guidance depend on this project? We're not going to, you know, give numbers, but, we're not only, depending on these projects, in the Americas. If that's the sense of your of the question, we see that we have a potential head improfessional in most of the geographies, which is quite good. Okay. And my follow-up question was around regarding the pricing. It seems that the price pressure has stepped up as percentage of sales sequentially between the first and the second quarter which was a little bit of a surprise because considering increase in raw materials think actually that the price pressure potentially would come down. So, can you maybe comment on the dynamic on pricing here, please? Yes, sure. I'll be with you. So when you look at the price effect, it was minus 100,000,000 Q1 was minus 87,000,000. So, I mean, we don't really see any material change from that standpoint. Now, of course, it depends on the mix of the businesses and the pressure we've seen in one business but also in the other business. In LED, which is usually where most of questions are because that's where we see the highest price pressure. We haven't seen any material change in trend in pipe pressure in Q2 compared to Q1. And then for the other businesses, it's remained also net infinial with a few inputs and takes here and there. But I would say overall, no major change of trend evolution here with respect to price. Thank you. And moving on to the line of Paolo Katre with Societe Generale. Please go ahead. Your line is open. Hi. Alok Katre from SocGen. And thanks for taking my questions. I have a little bit of a follow-up on the professional side. In the U. S, clearly, you have those, let's say a few large projects that come in. And I can understand that you have, you know, pretty sizeable conviction on those, but can I sort of take it can we sort of take it as a message that you've already started progress on those projects and therefore that is what is driving the conviction that those projects will get delivered or is it where the projects are still say, not even in the work in progress stage and therefore, there's some risk attached to it? Yeah. Sure. I've been running a lot of ads. So, we have, at the back end of Q2 already invoice up to this project, but we could not recognize them as revenue yet because it depends on the actual installation of the group by So, as you can see, it's a reality. We have not only started, to produce. We have also started, to, invoice according to the contract that we signed. So it's a reality. Okay, fair enough. And then my question around the nonmanufacturing could you just elaborate a little bit on where do you stand in terms of the process, particularly in terms of HR finance and selling costs I guess you started some of these actions over the past 6 months, but any any details or granularity on where you stand over there and by when should we start to see a bit more meaningful impact on the savings sort of feeding through into the P and L? And the associates sort of question over there, you talked about the ESD changes in India, should we, you know, I can understand the sort of sales impact over there, which should we then also see that the network, let's say, the bunch of red dots that you have on the distribution footprint over there also then start to sort of help you, and and are you sort of doing any specific steps over there, for the second half of this year or, or over the next 12 months or Thanks. Sure. So, Stefan can take the cost reduction action, you know, to work through India. Sure. So, I'll log on the NN feed. So, I think it's probably the area where we started earlier, which has continued already to a reduction of what we spend in terms of MNCs. There is more that we can do here, but that's the one that is the most in advance. Real estate also to a large extent, EMEA, I'm thinking in terms of spend and put aside the games, of course. Then when it comes to HR, that function is also has started its reduction plan probably about 6 to 9 months ago. And we start to see the impact in terms of reduction, and we will see more by the end of the year, especially in 2018. And finally, finance the reduction in streamlining when it comes to finance have started with the design in the after the year and that started at the end of the 2nd quarter. Of course, implementation takes a bit of time because we had figure out a thing that we need to do and to provide a refining function. And so here we would expect to see the material effect in the course of 2018 and then the full effect in 2019. Finally, when it comes to select, which is the last part of spent in minimum fees. In many regions, there has been a lot of actions taken to optimize our FedEx which we've been doing in parallel, as you know, and we highlighted some of the investments we've made also to support growth in specific area than very specific businesses. But to the world, we expect the end of the day in 2018 to also have a reduction of as a percentage of financial. That's the mid to where we are on the overall transformation and reduction of cost initiatives. Thanks, So just to understand it clearly, IT more advanced in that sense. But I mean, for 2017, really it's HR that you should see in most of these savings. This has come through and then finance and select really is a 2018, 2019 topic, right? Yes. Yes. And also the as a percentage of sales, the impact of higher sales in Q3 and Q4 are also contributing to dilute our NMC as a percentage of sales. Kind of fair point. Thanks. So, if we go back to the question about the GST and EMEA. And directionally, and for the medium term, we believe that that a great measure and in the disappointing time, you know, the Indian territory is quite in a complex when it comes to the tax regime in between provinces. So it's a great measure that it will need after it's being implemented, but moment of adaptation. And we believe that that would have an impact on our top line as we have described, but that's for the short term. In fact, we will not really try the DFA and the wide network that we have new engines in the point of sales, you know, they are based in the geography where they operate in the extremely, if you and we're going to continue to support them, you know, after that measure has taken place. But, you know, that GSE measure will help greatly, you know, the way we are going to manage logistics in India because once you've done, you know, we need to have warehouses, we know the difference provinces and only we're going to be able to further optimize and streamline the cost of our logistics over there. Thank you. And moving on to the line of Danielle Acosta with Goldman Sachs. Please go ahead. Your line is open. Hi, good morning. I have three questions. First, Can you let us know if you closed any plans in conventional and what's the plan in there? Obviously, it's done very well on the margins. So we'll just have a little bit of more of a visibility on plant closures. The second thing on market share and following on some of the questions on LED, the good level of growth in LED? Do you think you're gaining market share and maybe you can expand on market share more in general? And the 3rd point just wanted to ask you about pricing in Lens and obviously as you said in the beginning, you're gaining some market share in Lens. Is there a point where you can actually take advantage of these in pricing as well? Good morning, Daniela. So, let me answer to the first two questions concerning the plants in conventional. So, nothing that we have really to mention on indicated in Q2. You know, once again, we know the way we work on that business, looking at all our industrial setup and we are looking forward the factory utilization of the different plans that we have. And whenever that goes beyond a given threshold, I mean, we measure that we have to take. We may come in the distant future, but for industry engineering, we will only comment on those whenever they happen. Market share relates to that on NED, we are growing at this point in time at a very good level. We believe that we are effectively taking market share And what is also extremely important if you remember when in Q2 last year that business that was running at you know, high double digits, starting to be between 11% to 13% starting Q2 last year and for the full remaining of the year. Implemented actions, very clearly dedicates actions. Your infant country will want you to expand, on our good markets and try a new good market, but we're also linked to the availability of different prices in offer early demand. We also are trying to take advantage in the United States, you know, specifically about, from each utility base So that is happening. And we also decided to, expand our reach in order to private labels, but at the same time, we did a much more pull towards aiming down than what we did in the past. And all that is paying off, you know, so it's a market share increase, but which is also directly related to concrete but it's good to see also in that business continues to improve on its operating margin because we again increasing by 12.20 basis points for the quarter. So, what we had said at the time was implemented, it took a little bit of time in a to 3 quarters to get, to get the impact of these actions that, the action were in place that are continuing and we see the results, which is, which is good. Yes, sir. But, yes, to your question on pricing programs, Danilo, so, yes, we see a very limited Sorros, and they're still a bit of Python origin base into very limited, across the various public lines then we are still able to extract savings from mobility from purchasing. So overall, of course, that helps and that allow us to still be able to adjust in the due price in order to continue to get market share. But again, if we needed, and we haven't seen any material exchange in Q2 versus Q1. And maybe just to compliment, you know, at this point in time, we continue to have a very rigorous, very stable strategy when it comes to pricing and launching. As it has happened over the past 3 to 4 years, there is the much price. So, we're expecting the market price and a very, as I said, a very limited, a level of of price erosion, you know, are we taking advantage of our position to increase prices? No, we're not doing that at this point in time. Thank you. Thank you very much and moving on to the line of Victor O'Reilly with Jefferies. Please go ahead. Your line is open. Good morning. It's, Peter Reilly from Jefferies. My question, please, is that it won't tell that what's happening in the U. S. Energy market. There's been a shift away from premium to value and private label, which is very dramatic last year. Can you talk about whether that trend is continuing into this year? So in effect you're seeing ASPs still coming down quite rapidly. And whether you see any sign of that trend starting in other places, for example, Europe? Yes, Peter. Good morning. As I've seen previously, we see the trend in private label for consumer LED lamps, a trend that is taking place worldwide online and offline. And we are back to participate into that market. And it was probably more difficult for us to participate in that market when price erosion was extremely steep. And now that it will be less steep than what it used to be. We are we are participating for that market. So it's not only phenomenon that we see in the states where it has actually happened, but it's also a phenomenon that we see in other regions. Now, If we look at it from a different angle, this is not something to renew, you know, also, in the past, with conventionalizing, we had that settlement of private labels, by, you know, some big and small retailers and Nazi you treat it back down to that. So it's something that we know how to do. Now, I think, the trend that is very good for us you know, it's very good for our volumes. It's very good for our bit of material and, as a consequence, it's also good for the operating margin. And can I just have a follow-up please on pricing for issue? You've obviously got very high credit ambitions and it's getting very good reviews, but it is price to the significant free into some of the new entrants coming to that marketplace. So do you think you can keep shoe pricing where it is or do you think you're going to have to be more competitive on pricing given all the other people that are targeting that space? So, Peter, that's a very good question. You know, we are looking at the situation at this point in time, And, when we look at our offer, we look at it more deliberately. So it's not only about connecting to us. And we could be compared, you know, with other entrant that also connecting to our clients. But what you get when you buy is QLAN, it's not only the land itself. It's the connectivity with the full ecosystem that we have been developing on which we invested investing a lot. So, let me give you examples. What you learn can be connected to motion sensors, it can be connected to battery switches behind which you can register all different types of scenes, you know, we invest not in the app. So after a mix experience in the shoe offer, it's not only the lamp itself, it's everything mentioned around it. Now, we have also been working term CV, with the smart home integrators that are, at this point in time launching on the market fully activated devices, which is boosting the market of connected brands here, you know, the name of the game is not only to provide a land that can react to a command given to a waste activity device. You have to make sure that when the covenant is given and go very quickly to the cloud of the smart integrator, then goes to our cloud and comes back really fast to come on the land. And there's a huge investment to be done there. So when we look at our offer few It's not only about a lot, it's about the ecosystem that comes with it. Now, we're looking at it at this point in time because it's true that, you know, the traction of that business being also bringing a lot of competitors. And if at one stage, you know, we need to review our policy of pricing, we will do that. We're looking at that quite, quite active. Thank you. And moving on to the line of Vincent Olafson, Kepler Cheuvreux. Please go ahead. Your line is open. Good morning, gentlemen. Two questions left from my side. First on the restructuring and the manufacturing footprint adjustment there and the chart that you took in Q2, is that in a particular region or are you taking measures there on a worldwide basis. And then a question for Eric, I saw a headline on Bloomberg which seems to be quoting you that you might be interested in GE's like business. Did you indeed make such comment. And if so, don't you think there will be potential antitrust issues when you would buy that business? Thank you. So, let me take the one on restructuring for pork. We are also recharging for actions that we are taking more in Europe. I won't be too specific but more in Europe. So, it's not something that's global. I intend to be getting to some very specific and targeted initiatives to adjust the footprint, which can be either manufacturing core, of course, more general cost. It could be development cost. It could be a cost for the business will be 5 we are then looking at the overall cost structure of our various business groups. So, this is at the $23,000,000 each covering. Open that because if I look at the professional, it's probably still the North American business, which is on the lower end in terms of margins. So, is there any meaningful restructuring in that region is it mainly the top line which has to drive the margin improvement there? It's mainly top line. That we expect to grow in the U. S. So let me now take a second question about light bulbs and energy. So, we've commented, maybe I was not clear enough this morning, but as you guys said, it's quite quite clearly, we're not interested, to acquire light bulb companies. This is not where our M and A strategy grows. We've stated in our rainfall this morning that we interested in eliminating that company that potentially would come from acceleration and technology breaks for systems or platforms and capabilities for services. So, this is where our imminent strategy, we play, and we said from the beginning, you know, small to medium size, bolt on acquisitions. So, This is where we are, this is where we stay. So new interest, to buy a livestock company and not interested by Jeanine. Okay. Thank you. Thank you. And moving on to the line of Nigel from with ING. Please go ahead. Your line is open. Hi, good morning, gentlemen. I have a follow-up on the early discussions around the larger projects in Professional. So, if I understand the U. S. Project for the second half is also a street lighting project. Could you just give us a hint how this compares to Jakarta. I think that was about 90,000 luminaires. And then also more broadly, I mean, should be ceded as a trend strengthening into the next year or is this more of a one off, for the US today? Thanks. No, Nigel, it's not a street lighting project. It's more in architectural lighting in that specific case. We don't need to be able to conventional whenever it happens. Yeah, but it's, it's, it's a big project, so it's a one off that it could, you know, generate for the sales moving forward. But when we look at the project at its army, the discounting time, we could consider it a one off. Clear. And then on sort of how should we see these bigger projects going forward? I mean, just to what extent will you continue to flag these or at some point, or your course of business and how would it compare to sort of a second or at least the 1st half next year? Yes, we will keep the same, we've sanctioned funds since what we have done previously. Where we believe that there are some projects that can be substantially impacting the numbers we will commence. We need the same meaningful big project in Asia Pacific, last year in the second quarter of 2016. So, we continue to highlight whenever the size is sufficiently material, so that, so that we inform you. Now, we are managing pipeline of projects, you know, reviewing them on a regular basis. Also, big project take time, you know, in terms of, commercial process, before taken orders. So, we have all these ones ongoing at this point in time. And whenever there is something sufficiently substantial and material, earnings from you. David Suckman, KBS Security. Please go ahead. Your line is open. Thanks for taking my question. A lot of my question is actually being asked actually, but for mathematics, could you clarify please what has been the impact of the effects of new cost of goods sold in particular the year that we're being so in Q2. And then maybe a question on the Philippe Suisse. Could you explain the funeral making, the strategy you have and the objectives you will set yourself in terms of profitability? Yes. So David, on the 6, as you know, we provide this in the appendix in terms of the breakdown of sales. FX effects had a positive impact on sales, which is largely due to the U. S. Dollar Now, when you look at our cost structure and stream cost of goods sold, remember we still have a large amount of costs that are in Europe, is, of course, a larger number that is even in India needs the devaluation of the Remindi that has the continued impact. We don't quite the specific details of those impact, but that's what explains why the gross margin and also at the adjusted EBITDA level we had the mix of that editing impact on sales. And then suddenly get the impact that we're left to done because of the favorable impact of Renminbi and the cost of goods sold, and that led to a really impact on the adjusted EBITDA for the second quarter. We also had 1, by the way, in the first quarter of Unitiast. So yes, from that standpoint, it's been more insulin positive impact. Correct comes to finishing on the investments that we're doing. We do 3 types of investments. So, the first one in innovation. So, I've talked previously about what we do in terms of cloud to cloud connection as well as delivering new offers to the market. So, that's one. We do also substantially investment in terms of marketing campaigns and tool. So we have been able to see, you know, over the past quarters that activation for the business is extremely important. And, we have a set of, change that are going to be putting the market in Q3 and Q4. And the last of investments that we had made on the business, relates directly to logistics supply chain capacity. So we realized that in order to be able cattle for the volumes that we expect in Q3 and Q4. We also like to step up, in terms of logistic and and operations, and this is where, the investment that we've done in that business has gone. From a profitability standpoint, we should aim at the profitability level, which is, which is high. We're not commenting specifically that, visibility of the business, is, is very good. It And then if I may, just a quick follow-up on the operating leverage you expect to have on your logistical supply chain investments? When should we expect to let's say to to see, like, the pay of this payment in terms of margin? So, to explain also the way we analyze the supply chain, we are not manufacturing we are using strategic suppliers to manufacture. So, we fully design ourselves. So, we will see an immediate impact on our performance whenever we step up together with our suppliers their capacity. Thank you. And moving on to the line of Alexander Virgo, Bank of America Merrill Lynch. Please go ahead. Your line is open. Couple of questions, if I may. 1 on Professional. Can you talk a little bit about what you're doing underlying in North America? I mean, obviously, I understand that you've got project work that underpins margin improvement. In the second half, but I'm just wondering from a sort of manufacturing footprint or a cost structure fixed cost structure of what you're doing there, particularly in like the indirect cost commentary earlier on. And then the second question, just around the second half. Obviously, your growth, numbers in the second half of last year provide you with some relatively easy comps, I think it costs most of the business actually. So I can understand the, the confidence in the growth accelerating, which is good. Can you just talk quickly about the impact of KSA on professional, and how we should think about that in the back half? So, in a, in a professional, in the U. S. First, So we have been, currently, you know, adapting our cost structure, to the business. And that we have in, in that territory. I mean, we continue to do that on a regular basis. So it's not only about the big project that we are talking a lot about here. It's also the rest of the business. We don't really adapt whenever we be. I will check share to the business we have there. Now, we have also dedicated actions, towards distributors, agents and install end users in order to develop the duals in the U. S. And we see in many of the different fronts that business growing after a few quarters that we commented in previous years of decline. So, there are lots of actions that are ongoing and despite the big project that we're focusing a lot on giving this call. So a lot of things are happening in the U. S. And we are permanently adapting there. When it comes to H2, you're right, the the the base is conversion would be slightly easier on the close we declined. 3% and maybe below 3% last year, both in Q3 and also in Q4. That's only about the base of conversion. I think we expect, you know, genuine growth also to come during those 2 quarters. Now, let's say, so we still are registering in Q2, an impact of K on the product business of 180 basis points of growth. So it is still, important that is much less than what we experienced last year. So, that's exactly in line with what we had anticipated. So, we were very impacted last year. We had a B plus impacting this year, but it's still a market that is not rebounding at this point in time. And we have limitations in doing business. And since we have decided not to do any more business with customers that have not paid us, And when it comes to, behavior after the provisions for bad debt that we did take last year, this is coming in, but slowly And I would tell you probably a bit slower than what we had expected, but that's the reality of the situation. And so, yes, we do expect KSA to be rebounding, for the rest of the year. Okay, lovely. Thank you. Thank you very much. We now take our last question from the line of UBS. Please go ahead. Your line is open. Yes, good morning. Just quickly following up on your U. S. Comments and what you've just said on the question before that you're quite confident on what you're seeing in your MOSSA based business. So would you be confident to start outgrowing the underlying market again more like acuity at the moment. We all know the market is kind of flat. There's only slightly So, would you be confident that in the next couple of quarters you start performing the market close again? That would be the first question. Well, if we take into account the big projects that we have talked about and that we're going to be, invoice thing, in those quarters, probably. Okay. But not excluding those projects. Well, it's difficult to say, you know, then we're going to go into a lot of details. What we are saying is that we have sense as a competitor that the market was softer, you know, starting from August last year and it has continued in Q4 and Q1. And also in Q2. So the sooner we are acting on the bucket and we are taking all the possible opportunities. Okay. And then I just have a follow-up question on what you said on India. Did you say this is going to have an impact of 15,000,000 on the top line or 15? Well, 15,000,000. Okay. Thank you very much. Thank you. Thank you very much. And I would like to return the conference call to the speakers. All right. Thank you ladies and gentlemen, and thank you very much for attending the call and for taking part in the discussion of our If you have any additional questions, please don't hesitate to contact the restoration and we are happy to answer your questions. And again, thank you very much and have a nice day. Thank you for attending.