Earnings Call: Q3 2016

Oct 20, 2016

Called as head of the business group lamps. I would like to hand over the presentation to Eric Perondala, we will give the business update and follow-up by Stefanang, which is regarding any update about financial performance and us, we have a Q and A session. Eric, please, the floor is yours. Thank you, Rick Yaron. Good morning to all of you. It's good to have you numbers on the call today. So we will proceed exactly as we have done, during the previous quarter, a small presentation to start with by myself, and then, Stephan on the highlights for the quarter. So let's move immediately to slide 3. And then we look at the performance overall to finish writing. So we've declined in sales by 3.3% globally. While our LED based activities have continued to grow by 16% and now represents a 56% of what we are selling in Q3. Also to be noted is the strong improvement in and profitability. We gained 250 basis points in Q3 versus Q3 last year. At 10% for the quarter. The net income is 1,000,000. It has to be read in a specific fashion because they are set 1,000,000 included there, but for the brand license fee separation costs and financial expenses, that were indeed not including 2015. We made the same remark in Q2, and this is something we will have to live with probably for the coming quarters. Our free cash flow was strong at 164,000,000 and this is mainly linked to working capital management. The next slide is about giving a global view about the businesses. So if we look at clamps, we have declined by minus 13 percent, pretty much in line or better than what we had expected. And we've improved, once again, our operating margin performance by 160 basis points. In LED, we grew still double digit, a bit less than our expectations and we're going to come back to that for an improvement of the operating profit of 3.40 basis points We declined, in professional by 3.8%. And with a slight decline also of 60 basis points, on the operating profit while home has grown double digit in line with the previous quarters. We've strong improvement also in the operating margin of 1340 basis points. So that leads the overall numbers that are a decline of 3.3 percent globally for the company and improved 250 basis points on the operating profit margin. Let's look now at the performance by businesses. So Lance has continued to perform that on Slide 5, according to the pretty much according to the previous quarters. So we had, a top line and a revenue, which probably declined slightly less You know that the bandwidth that was given around 15% to 20%, we had 13% in Q3. And we have been able to maintain, if not increase further, our operating, profit margin at 21% in Q3, mainly driven by the fact that we anticipated on our cost base at launch for a lower volume and the volume is higher and it brings immediately a benefit to the bottom line. Also to be noted that we have successfully divested our quartz and specialty glass business in the Netherlands. It was a very important plan that came to completion for us percent and we'll make no secret that we were expecting more. So we talked in Q2 about situation in Northern America that has also impacted Q3 and especially at the beginning of Q3, but it's still there. We have productions in place that we can talk about later down the track and they will bring benefits, but they're not coming as quickly as we had imagined. We've also seen in some Europe countries where our LED penetration is high. And I believe that this is a normal phenomenon when the LED business has to be bigger and then the conversion part of the business, the LME business start to grow less than before. Another element which is important to the business is that the margin is still moving in the right being above 10% in Q3. And we continue and to develop new offers and we'll be introduced to the market, again, some interesting innovation that we can come back to eventually also later. So let's go to professional. So professional has declined by 3.8% in the quarter. And what we had started to see in Q1 and Q2 this year, not only continued in Q3 when we talk about the situation in the Middle East, Kentucky, but we have seen the environment worsening in Q3, which partially explained these numbers. And we've seen also in some a country of Europe, the outdoor market being much softer than in the previous quarters. America has to posted growth on that business for Q3. So the adjusted EBIT has unslightly decreased compared to the same quarter last year at 6.3 percent versus 6.8 percent last year. So, also a few innovations on that business. I could talk about what we've done for the stadium, for the Javentus, I completely led with the Argonav Vision LED providing to the fan an unprecedented a light show pretty much or what we continue to do with LA in in the U. S. Where basically after having provided the connected nodes on the luminaires and the software Cititouch backbone, we also now investing with them the possibility to boost existing sensing in the polls for them to be able to detect vehicle lesion and sand very quickly, emergency services at the right place. Let me finish off with Home. So Home has continued pretty much according to the trend that we experience in the past quarters in terms of growth. It's a double digit growth. It's happening in all the businesses and in all the geographies. And also to note for the quarter, the improvement in terms of operating margin because home was in Q3 close to breaking even. Very interesting development here, the partnership that we're developing with Google, you know, for Google Home, parts of that we're developing with Amazon for Amazon Alexa, which is voice activated command. On the lighting as well as the new hue motion sensor that provides a lot of the new possibilities and new features that were what you recognize at the infar this year. So this is what I wanted to cover according to the format that we've used previously. Now I will pass the mic to Stephane who will talk to more to us a bit more about the financial performance. Thank you, Eric. Hi, everyone. Let me go on to page 10. So, here, we thought we would give you a little bit of an donation about the comparative sales growth in Q3 versus last year and how it compares to what we had seen in the previous quarter, I mean, in Q2. So you see on the graph that we went from a decline of 1.5% to a decline of 3.3%. So 180 basis point degradation. And as you heard from Eric commenting on the various divisions, essentially all the decline comes from our business professional. And again, the comments we have made on the worse and the impact of Middle Eastern Turkey and also some softer market conditions in some European countries. And then with respect to Lambs having a better performance in terms of growth compared to what have been posted in Q2 and home being pretty much at the same level of growth as in Q2. So we thought I was a way for you to better understand the trends in growth in Q3 compared to what we had seen in the previous quarter. Turning to the next page. Page 11 and deep diving a little bit into the adjusted EBITDA performance in absolute value you can see a material increase this year compared to the 2015 and the significant improvements in the margin to now 10% This has been driven very largely by the growth 1,000,000 compared to last year. And as a percentage of sales, it increased by 410 basis points So we were in Q3 almost at 40% gross margin during the quarter. So that has been a very strong performance in terms of the driver of the gross margin improvement, they are pretty much similar to the patterns we've seen in up to now in previous quarters. The volume and mix being positive in particular driven by lead, price being negative across a number of business group, but also in particular in EDD. And we have been able to more than compensate the price decline by the efficiency that we have in our operations by the efficient procurement savings that we are able to secure and also by the productivity that we have in our manufacturing plants. When we look also at the cost base outside of the gross margin, it is something important for us in terms of optimization and reduction. And despite the fact that we had some additional costs, which we didn't have last year like to buy a license fee, we've been able to reduce the cost base and we actually took out 1,000,000 out of the cost base in the third quarter compared to last year. So a very good quarter, both in of course, margin and in terms of cost reduction. Turning to Page 12, working capital sorry, sorry, to Page 12 on the overall profitability, we thought we would step back a little bit and look at the trend over the last few years. If you look at the right hand side, this is for the 1st 9 months, you see in terms of adjusted EBITDA, 1,000,000 and now very close to 9% EBITDA margin for the 1st 9 months, and that's a significant improvement compared to the same period in 2015. And that is very consistent with the improvement that the company has been able to post since 2013, as you can see on the left hand side. So again, we are on an improvement path in terms of operational profitability you can see this every year and you can see this only in the quarter, but since the beginning of the year. Turning to Page 13, Working capital has been also a key point of attention of the company and the various businesses since a few years. And when you look at the performance since the beginning of the year and in particular in the third quarter, it's been very strong. On the right side, you see the inventory level. Which is at 13.8%, which is almost 2 point below last year at the same period. And also, which is below the end of June. And knowing that the first quarter is usually a quarter where we build up inventory, it clearly showed that there has been a very healthy management of inventories across our businesses. And we've been able to extract cash out of this as you will see when I comment on the free cash flow. Working capital as a as a whole, on the left hand side, 11.2%. Again, this is almost 3 points below last year. And that's a point below the end of June. So overall, a very good management of the various working capital items. And you can see now much more stability in the level of the working capital is across the year. Turning to cash flow. A very strong cash flow during the quarter, 1,000,000. It means that year to date, we are now at 1,000,000, which is very close to the cash flow generated for the same period in 2015. And that's despite the fact that we had a number of additional charges and cash out on the branch license fees on interest and a number of things, which were not in the cash flow last year. So it's a very good performance. In the quarter, it's been driven by not only the earnings improvement and the increase in adjusted EBITDA. But also the comment I just made on the working capital, we generated during the quarter of 1,000,000 of cash out of this working capital management, and that's the case across the various business groups. Finally, on page 14, one quick comment about our Forex. Nothing very different from what you've seen so far. The breakdown of our sales by currency is relatively similar with respect to the impact of forex In Q3, we've been impacted to a lesser extent than what the impact in Q2. From the sales standpoint, they impacted us for 2.1 points of sales compared to last year. We had the impact of the Argentinean peso, which was, which decreased by close to 40%. The British pound compared to last year for sure has also decreased And finally, at the level of the profit and adjusted EBITDA, actually we see a positive impact because a lot of our costs are in renminbi and that also helped which means net net at the EBITDA level, it was a 1,000,000 benefit. So that concludes my part of the presentation, and I think we can now turn to the Q And A. All right. That's good to continue. Yes, thank you very much. Ladies and gentlemen, we will now start the q and a, please note that you're limited to one question per round plus a follow-up Please press 1 on your telephone keypad. If you wish to ask a question 1, if you wish to ask a question, please And our first question is from the line of Citi, Martin Wilkie. Please go ahead. Your line is open. Good morning. Thank you. It's Martin from Citi. The first question was just really around the LED growth number you highlighted, the Americas, and you mentioned that last quarter as well. But now you're also talking about, Europe. In in the past, you've mentioned that you saw LED would be a low teens market growth, and I just wanted to sort of pick apart the European comment in particular, has that been pricing worse than expected, or, is is it to do with, as you said, sort of a comp number on volume and should we start thinking that that low teens market growth into next year could be more challenging or just just really to go through the sort of components that made up for that slowing growth in LED you. Yes, Martin, an important question. So let me give you, a global picture on the LED business and it's a growth trend. And then we'll come back to the specific point about US, Europe, and the pricing. So, we're still growing double digit. It becomes quite sizable business. So we have also, and we worked a lot on analyzing the numbers. We have in the future also to anticipate that the growth will not be able to remain you at the 30% level that we have experienced a few quarters ago because it becomes a very sizable business now. We have a situation in the U. S, which is pretty much a go to market. A situation that we have to manage. And we have started in Q3 to implement the actions at different levels, both at the push at the pull level. So I strongly believe that at this point in time in the life of the LED business, we need to pull the market more. We need to inform our customers about the benefit of the technology and the benefit of our offers. So they are, at this point in time, comprehensive campaigns in the U. S, but also in other markets that are being prepared in order for us to do so, which is one other element to bring level of differentiation on the market. Specifically in the U. S, we have also push actions, which is to try to identify a new go to market accesses and we'll identify them in order to sell through more channels than what we used to do, previously. So all these actions are ongoing. We have still been impacted it in Q3 by the U. S. Situation and especially at the beginning of the quarter. We've seen the situation improving at the later end of the quarter. So that's the situation in U. S. The actions are in place. They have not completely brought their fruits in Q3. And we believe, it's going to take a bit of time before they come to full completion, but actions are in place. What we are seeing in Europe, we are seeing that in markets where the penetration of LED is high. And we have some markets in Europe today where we sell more LED and we on the lamp side of the business, more LED lamps than we do sell conventional lamps. When this shift happens, we also have witnessed that our potential growth in these markets is lower than what we have that what we have experienced in the past. So hence, the comment about Europe. Pricing. Pricing is also a very important dimension, not only in Q3, but since the beginning, of the management of that business. What we've seen also in Q3 is for us not only price erosion, but as you can see, we can follow the price erosion because price is eroding, but we continue to improve on our profitability on the basis of a double digit growth. So the P and L is working from that standpoint. What we have experienced also is that we're selling compared to Q3 3 last year product of lower price because we sell in proportion more basic LED lamps than it was the case in Q3 last year, which also has an impact on the top line and the growth in percentage as a whole. So that's what I wanted to say, nothing to be really complete on the LED business and also telling you that the actions are put in place in order to counterbalance what we've experienced in Q2 and still felt the impact in Q3. And just as my follow-up then, I mean, obviously, the issue that as penetration increases, obviously, the, the growth rate becomes more challenging, and I'll be sure for many countries in the future, not just Europe. I mean, do you still think that, there will be a low teens market growth in the medium term or, is the maturation of the LED market now changed a little bit compared to what it was, say, last year? So I think that at one stage, the growth of that business as it takes a bigger proportion of the market would get closer to the overall at growth. And that will happen with time now. The issue that we have is the difficulty to predict when this is going to happen because from a geographical standpoint, you have, we have still huge gaps and huge differences. In terms of penetration and in terms of sales growth rates. But, yeah, this is a situation, Martin, I would echo what you're saying, when that business starts to be the major part of the market, then it would take a growth rate, which is much closer, than the market growth. Thank you very much. And moving on to the line of David Voss, Barclays. Please go ahead. Your line is open. Hi, good morning gentlemen. Thank you for taking my question. So, I was to dig a little bit deeper in the in the price erosion trajectory here because if I've done my math correctly, it's it seems to suggest the bridge in the presentation seems to suggest that it's gone down by about 100 basis points versus Q2. Where is coming from? Is that incremental price erosion in the LED side or is it somewhere else in the business, please? Well, I can, I can, I can start and maybe Stefan will complement? So what we've been seeing, in the past quarters, and I would say probably in the past 2 to 3 years is a systematic same pattern. As you can extract a lot of costs, from the fact that the technology is becoming more mature and from also the fact that we are gaining volume, which are further reducing our costs. I'm talking about LED based activities in general. We've seen that we're capable to extract a lot of cost benefits that are also compensating for the price erosion. So that's a mechanism that we've seen on and on. So now for the question, which is more detailed about price erosion, I can let Stefan, it would be. Yes, David. So when you look on page 11 that the price erosion impact, the 1,000,000 overall, yeah, it's probably a little bit higher than the absolute amount that was, for example, in Q2. And I think across all businesses, we've seen an assessment that's a little bit higher. Now the flexible is not exactly the same. So I wouldn't say that there has been any material increase in the pie erosion in a particular business And again, it depends also on the type of product that are being sold. So that's a little bit what we can say, but as mentioned by Eric, nothing fundamentally different on what we've seen in previous quarters. And then on the cost side, again, we've been able to take a lot of cost actually more cost out than what we had in previous quarter. Perfect. Thank you so much. And if I may ask my follow-up on the lamps business, clearly a bit of a shift in trajectory there margins, what can you say about the future? Is this a new trend that we should be extrapolating? Was it a one off? If you can comment on that, please. Yes, David. I will take the advantage of having Roni to answer that recurring question Okay. Yes, thank you very much. If you go back to and look at the slides on line switch 8% before, that you can see that we are in a certain bandwidth in decline. And this is a lower decline than we have seen in the last couple of months. I am not going to accelerate that into the future necessarily it's only a 1st quarter where we see some less decline than we have seen before. That's that on the top line, if I look at profitability, we have guided for the medium term that's not now and next quarter, that we will be in a bandwidth of adjusted EBITDA around 16%. We're now doing much better, but it's all against an expectation of decline. We are doing better than we have to better Salesforce and benefit from that. And we have to see how long we can maintain that going forward on how we have, of course, some visibility. It's not that we will, get back to the 16% quickly, but I'm not going to promise that we will stay at the 21% either. What, David, maybe to compliment you. It's difficult to make of the results of the quarter a trend and especially when it comes to the top line because it also depends on the base that you're starting from. So if you look at, and you have all the elements to be able to compare in Q3 2015, we had a rather steep decline after a Q2 that was very close to Q1. So in Q3 2016, we were comparing to a base that was probably more degraded than it was the case the previous quarter. So I think we need to look the trend in terms of top line more, you know, accumulating the quarters one after the other one than looking at quarter over quarter and trying to find new trend. If I may maybe add one thing here is, of course, that clearly our strategy is one of the last months standing And I think at least there is more and more evidence that that strategy is working and also we can reap the benefit. Okay. Understood. Thank you so much, gentlemen. Bye. Thank you very much. And moving on to the line of Peter Olofsen, Kepler Cheuvreux. Please go ahead. Your line is open. Good morning gentlemen. Also from my side, the question on the Lambs business, I understand that as of September, certain traditional products have been banned in Europe and also in China. To what extent have land sales in recent months benefited from that, I. E. Have you seen some of the wall sellers and retailers that you work with, building up incremental, inventories. Thank you for asking very good that you will follow very closely when the bands become effective. Yeah, we have seen a little bit of last time by, but in the biggest scheme that has no real material impact, particularly because this effected halogen Hurgent is a important category for us overall, but not the most important category. So, yes, it's true, but the overall impact is relatively a modest. Okay, David. That's clear. There may be a follow-up on currencies. I understand that at the group level, there was a 60 basis points benefit to the adjusted EBITA margin. Could you shed some light on how it did affect the margins in the various segments and which segments benefited most? Yes, Peter. So that had mostly to do with the gross base being in renminbi. So, from that standpoint, I think probably be Gilead had some benefits on the ForEx side at the margin level at the adjusted EBITDA level and probably more than most the other division. I mean, most divisions benefited from it, but I would say probably more of Digi Labs. Thank you very much. And moving on to the line of Nigel from PUTTER ING. Please go ahead. Your line is open. Hi, good morning. Question on the profit side. So you said excluding the Middle East And Turkey comparable sales growth was positive. So what about the margin? Would that have increased year on year? And how should we see the impact in the in the fourth quarter, current quarter, because of these developments there? Hi, Nigel. Yes, you know, we are we decided to, to talk about the impact of Middle East and talking about that we like so much to do this. We take performance as integral, but we had to highlight that the magnitude of what happens there is really impacting that business. So it's true we would have been profitable. Otherwise, the underlying performance from a gross margin standpoint, even with Middle East Pan Turkey is good. For the professional business. And as you may have heard, during the previous call, the impact that we have from Middle East, Kentucky is not only at the top line level, but it's at the bottom line level. And at the bottom line, obviously, at 2 level, the first level, because we're losing top line, so we have an effect at the bottom line. But also because we have to take provisions for bad debt as one of the elements of our performance in Middle Eastern countries, the fact that we are not being paid by some of our customers. So we have in a very rigorous manner whenever rules apply to take provisions for bad debt. So yes, there is also an impact at the level of the bottom line. At this point in time, We don't wish to disclose it specifically. But if we mention it, it's because it is also and once again, material for that business. Thank you. And then a follow-up on the cash balance. Which, amounted to about 700,000,000 at the end of the quarter. And, I'm assuming it's set to grow again because of the seasonality and working capital next quarter. So what is your thinking about the capital allocation? I mean, this must be ahead of your your estimates previously. Are you thinking about revising your dividend policy or do you see room for alternative ways to return some of this to your shareholders perhaps? So we won't change our dividend policy. You know, we said that would be contributing time in 2017 on the basis, Nigel of the full year 2016. So that would stay Now, what are we doing with the cash that we can be left with? We've also said that we have no specific urgency at this point in time to delever. I think the position of the debt of the company at this point in time is the right one and the condition that we have for our loans at the right conditions for us. So there's no absolute urgency to de lever. We have the possibility to do acquisitions, but we've been also very clear. The main part of our story is organic. And that does mean that we're not looking at acquisitions that could be of small to medium size. And in 3, very clear, domains. It can be a limited company that are coming on the market for consolidation, technology technological bricks for connecting lighting systems or eventually capabilities and platforms for services. So that hasn't changed. Now we could imagine if need be and we are left with some cash because we're not going to rush into making any acquisition because we have cash. We may think about additional shareholder distribution schemes. Thank you very much. And moving on to the line of Andreas Villi, JPMorgan. Please go ahead. Your line is open. Yeah. Good morning. Thanks for the time. On the first question on, on foreign exchange, which you highlight this before as a as a benefit We've seen quite strong headwinds earlier in the year. Maybe you could elaborate a little bit if you look forward what we should expect on FX benefit to the the operating profit line also as we lap some of these, big headwinds we had particularly in Q1 this year. Maybe also explain why despite the hedging policy effects is relatively big fluctuating driver for your profitability. And the follow-up question to that is basically also related to that, UK, obviously, the guidance is declined, again, what's the exposure there? You've mentioned in on Bloomberg, I think you're increasing prices, but can you increase them fast enough now given that the currency took another step down and what's your hedging position there? Okay. So Andreas, yes, on your first part of the question regarding Forex, well, of course, it's so difficult to predict what's going to be the Forex packets. We don't know about currency evolution in the coming quarter. Now if you compare to last year, yes, for sure, the British pound is lower today than it was in 3rd quarter and it's going to be the same in the 4th quarter pretty likely. So we would continue to have an impact on sales from that standpoint. What we what we the impact we had from the Argentinian peso, it's probably likely also in comparison to last year to last for the fourth quarter and maybe a little bit longer. Now when it comes to and that those have an impact essentially on sales. And as you saw in the third quarter, the impact of ForEx on sales was substantially lower than what it was in Q2. So from that standpoint, probably in Q4, still something on sales and close ups the level of Q3 than what had been seen in Q2. Now on profit, the plus 1,000,000 a little bit difficult to anticipate what could be the impact on Q4. Again, we'll see depending on how currencies evolve and killer in China. But yes, we could have still a little bit of a positive impact, but again, the magnitude is very difficult to anticipate now. And maybe Andreas to your question specifically on UK to complement what you've heard this morning. Yes, we're impacted by the depreciation of the pound. So at this point in time, we are selectively pricing up, but our pricing initiatives are not compensating at this point in time fully the depreciation of the currencies. So we have very specifically that market a hit on the gross margin. So we are working, as we speak, to continue at two levels, so on the pricing side, but also on the cut side to see how we, what we need to do to, to adapt to that situation. So today, you know, we are not fully compensating in UK, the impact of currency. But just to clarify, I mean, your hedging policy is to hedge kind of up to 80% of anticipated transaction volumes. So giving the guest that you have relatively low costs in the UK but high turnover, isn't that different now still protected by hedging? And therefore, this is more of a problem in a couple of quarters out rather than now. Yes, I think you're probably right. This should be the impact should be alleviated compared to what we had seen before. Unless again, the British bond continues to deteriorate from one quarter to the other. Thank you very much. And moving on to the line of David Vakman, KBC Securities. Please go ahead. Your line is open. Yes. Good morning, Keri, it's Stefan. Just a first question on the like for like growth in lamps and lead. Is there any correlation that we could make any link that we could make between the, let's say, the softer decline in lands and then lower growth in lead? That's my first question. Well, if you look at it, Let me, because we're working on this subject, as you can imagine, very much. Now what you see in, in euros has to be translated also in terms of quantities of products sold. And they are a much closer connection, when you look at the quantities and when you look at the euros. Now, in absolute thinking, yes, a softer decline in lamps would also translate into a softer growth in LED. In the situation in which we are today, I will not for Q3 correlate both. We've explained how and why we're performing the way we're performing in lands. In LED, I would not associate the softer growth of LED to our lesser decline in length. I think in LED, we keep growing double digit, but there are areas in the world where I believe we should extract a bit more growth and we're working on it. Okay. And then maybe a follow-up on the gross margin. Could you, I mean, gross quantify how much do you think it's really sustainable and kind of split it up by division? Very roughly? Maybe I can start and you can and you can continue. I think that What we're seeing today is, is also a structural improvement in the gross margin because we're working a lot on the cost of goods sold, as we've done in the past, in the past years and we do that quite successfully. At the same time, when the portfolios are simplifying because We have less conventional products on the market. We have a stabilized product portfolio. We believe we can segment much better the offers on the market from a pricing perspective. So there's a lot of work, you know, ongoing when it comes to, to, to the, to the margin positioning. Now I can let, Stefan, give a bit more color, understanding that we don't give the gross margin by businesses. So what we saw in Q3 is that every business improved its gross margin in percentage and shipper side lamps, of course, because of the revenue decline, the other businesses increased their gross margin, also in absolute value. So there's been a very good performance across the businesses on the gross margin front. Now to your question, it is sustainable and where do we see it in the future? Well, there are so many variables that are impacting the gross margin. It's difficult, but for sure, this is a fundamental driver of the operational performance of the company and we are managing it very tightly. Okay. Thank you, guys. Thank you very much. And moving on to the line of Peter Riley Jefferies. Please go ahead. Your line is open. Good morning. I wanted to start with a philosophical question for Stefan as the new CFO. Your preferred performance metric is adjusted EBITDA, which excludes restructuring costs. Now you've given me guidance of 1.5% to 2% of sales on restructuring. According to my analysis, you've been taking a restructuring charge every year for about 15 years now. So can you just help us understand why margin before restructuring is the right measure if restructuring charges have been there for 15 years and will be there for the medium term? Well, I would say in previous companies, I've seen this in a consistent way. So I don't think everybody's doing it exactly the same way, but it was not really a surprise for me as long as there is a clear communication about the restructuring moving forward. Now to your question, is this something that's going to be forever? I mean, I don't know, but the last for 15 years, and I don't know specifically about fleet sliding. What I know is that for sure, a business that is undergoing such a transformation in order to stay competitive on all fronts, you need to be able to rationalize. At some point, that transformation is going to be well advanced and it will very likely alleviate the level of restructuring charge. I think being able to show what is the operational profitability before restructuring and at the same time, communicating on what is the amount that is being reserved and spent every year, I think it's the right way to measure the profit. So maybe to just small compliment, we guided for 1.5% to 2% over the medium term. We said that after that, our restructuring charges will lower to 0.5 to 1%. Okay. And if I can just follow-up, coming back to Martin's question about the countries where LED sales and that's becoming a large part of the market. When you get to a certain level, say, LED is more than 75% of the market, do you go through a phase in those more mature countries where LED sales actually start to decline? Because you've replaced a lot of the installed base at Eddy's last a lot longer. So in the natural cycle of an individual country, is there a contraction phase when you reach maturity because you've done the replacement for the installed base? So we don't see that at this point in time, but what we see, we see that the growth rate is lowering. But do you think it should stay positive in most countries that there shouldn't be any structural depth because of the longer life? Well, if we read the people who made surveys on our business, I think They indicated that around 2020, then the business of LED lamps will start to decrease, but linked to 2 phenomena. The first one is the fact that the longer burning hours, what you're mentioning, but the other one is also linked to the fact that people may not replace an LED lamp for an LED lamp, but will replace an LED lamp for an integrated luminaire, what we used to call lead in air, in our own jargon or an integrated LED fixture. So we see at this point in time, but it's, at a minor level, but we see already today, sometimes that instead of changing a lamp for a lamp, our customers would go for an integrated LED fixture So it's happening at this point in time. It's not impacting today the growth rates of elidelands, you know, in, meaning that we don't see any negative growth rates. But once again, the forecast, the off fuel forecast that we have on the market is that this could potentially happen in 2020. Thank you very much. And moving on to the line of Philip Holder, Kempen and Co. Please go ahead. Your line is open. Yes, good morning, everybody. A question on the home segment. Do you think you can actually maintain your growth rates, in the home at a double digit rate despite the the comp base about to turn more positive? And and related to that, do you think that you are guiding for home to return to a profitable situation during 2017? But given the excellent progress you have shown actually in the last couple of quarters that looks conservative. I mean, it it actually looks like the whole of 17 could actually be very well profitable. Do you have any updated views on that? Sure. And thanks for the question, Judith. So first of all, we have very dedicated, growth actions, sales measures to grow in that business. And they are bringing results. They are bringing results in the geographies for all the businesses. So that's something that we're very pleased to see. We have to take also into account that we have a fast growth that we've always mentioned from systems, understanding that we have not opened all the geographies. We are opening a few markets on a yearly basis and we still have a fabulous potential ahead. So I believe in the growth of that business moving forward. And yes, we're going to be compared to a higher base, but we believe that we're doing, you know, the right action, but putting the right actions in place and to, to drive the growth of that business. Couldn't it be exactly what it is today in the future? I don't know, but we still believe in the growth profile of that business moving forward. Now to your second question, when we first talked about the possibility to be breaking even in that business. Also understanding that we are investing heavily in home system, we were not so credible, you know, a few quarters ago. So our job is just to implement the strategy and to to come to you with the numbers that are undeniable. So it's true that Q3 is not a quarter with with an extremely high top line compared to what normally Q4 is. So it's a very good news for that business indeed. That we are close to breaking even in Q3. And we know why this is happening. It's on the base of many different actions. You may have noticed that in Q2, we took important measures in terms of closing our contact historical headquarters and also a plan that we had in that business, you know, in, in China, which are going to show benefits, mainly in 2017. So, you know, we are doing what's necessary to achieve what we had said that we would be breaking even at one stage in 2017. If we can do more, we'll do more, but certainly that in Q3, we have a very good sign that what we have guided for is clearly doable. Right. If I may add a short additional question on your dividend policy because I still believe actually that the definition of your dividend policy leave room for interpretation as in what exactly is continuing net income. Are you already willing to share some more details on that or should we wait for Q4 on that? Well, I think we're going to wait for Q on that. We had said at the time it's the net income, which has to be, to which we add some non recurring restructuring, restructuring charges. So that, you know, let's give to ourselves, you know, a few weeks 1 or 2 months to be able to come with not only a clear definition, but a clear understanding to all of you on how we're going to distribute the dividends. Right. Thanks. Thank you very much. And moving on to the line of Alok Katre Societe Generale. Please go ahead. Your line is open. Oh, hi. Thanks for taking my questions. Olof Katre from SocGen. I just have, you know, 2 follow ups actually. Firstly, on the professional, clearly, you sort of work quite good in explaining, the Middle East impact. I just wanted to confirm, one thing is excluding the Middle East and Turkey region. Should we sort of think about sales and margins, better in third quarter versus 2nd quarter, including the North America? And perhaps you could also, talk a little bit about how you see things shaping up in the coming quarters, across, across the key, so regions. Sort of number 1. The second was in terms of lead lamps. I appreciate that growth rates, are sort of slower time, but perhaps, slower than what we've seen so far. But I was just trying to sort of get get a sense of how much cost you can still take out, whether it's, you know, whether it's product cost, whether it's, productivity, etcetera. And are you rather, how much growth would you need to maintain the margins, especially about 10% over the next 12 to 18 months? Are you confident on that front? Okay. So on the first question, which is regarding, professional, so what we have said is yes, the if we net the Middle Eastern Turkey impact in Q3, We would not only have improved the top line. We said that, provision would be growing. And profitability would be, of course, also improved, although we are not giving the specific number here. But as alluded to the fact previously that it's made of 2 components, additional bottom line coming from the additional top line and also the fact that we had to take provisions for that debt in that region. Now Alok, it's And this is what we have decided to comment and clearly indicate. We want to be cautious in the coming quarters because we have seen the trend that we experienced since the end of last year in Middle East Santos Key, worsening in Q3. I think there's a quite a high level of uncertainty around that region. At this point in time, there are many happenings we are fairly well invested and especially in the professional business is quite a substantial part of that business. So So I think the visibility for us is not exactly clear on how the market conditions are going to materialize Once again, let's be very clear on our position there. We are not just passively, looking at the situation. We're also taking measures. So we've been taking measures there in terms of and we have done 2 very heavy restructuring in the region, to take into account the market conditions. We have also launched specific, sales measures. So more on the distribution side on one hand and then looking specific and user segments that are let's touch, let's touch by the crisis in order to develop our capabilities and to develop ourselves in those directions. So the actions are in place. Now, I have to be here, probably a bit constrained on how I see the, how I see the future because It really depends on how the local conditions are going to improve, but we are not staying idle. We're moving ahead and we're implementing the actions that we believe are necessary from a sales and measures perspective as well as from the cost measures perspective. On LED lamps, on LED lamps, it's not the cost is not the main driver. What we have seen so far is that when there is price erosion, it means that there is also cost gains on the cost of goods sold and being the leading company in that business at this point in time, we have also the highest volumes on the market for that business. So we've been able to extract cost. And the story of the LED business is that it's a business which is growing. There is price erosion, but we are capable to compensate or more than compensate the price erosion with our cost reduction actions. So that works. On the other part of the cost, you know, it's a business which is growing and we are monitoring, you know, the level of cost that we still invest in that business. So it's not that we need a given level of growth to be able to cover our costs. Our costs are already covered, and they are covered by the business that we're doing at this point in time. So in absolute terms, if we were not growing today in that business, we have the right level of cost. So with the business growing, we have immediately an operational leverage and we decide more how much more we need to invest in the business to sustain it. So this is the situation of LED to answer your question a lot. If I just have a quick follow-up in terms of the PG Professional, if you could just talk a little bit about the North American market, trends over there clearly. And I think of your competitors were, were a bit cautious, but maybe you could just talk about how things have shaped up, PRS North America, particularly. Thanks. So we've seen in Q3, some softening in the Northern American market when it comes to a public outdoor. So we are monitoring that as we speak, this is on the contrary to some of our local competitors, we are we have a higher market share and we are more invested in outdoor than others. So we're looking at it as we speak. Otherwise, there are no major a difference in trend on the American market than what we have seen previously. So once again there, you know, we have very dedicated actions that we have started to put in place a while ago and that are delivering benefits on the regular basis. And the element that we're working on, pretty, pretty much, in Northern America, but I would I would expand that also maybe to other regions, but specifically in Northern America, is also on our supply chain when we have the changeover between conventional and LED technologies, we have to make sure that this is similar, when we support and service our customers, moving from 1 catalog to the L1. And we have lately also reinforced the teams are working on these specific dimensions. Thank you very much. And moving on to the line of Ben Uglow, Morgan Stanley. Please go ahead. Your line is open. Oh, good morning, everyone. Thanks for taking the questions. I had a couple, I guess the first one relates to the previous question. Just, I don't know, Eric, if you can give us any more sense or color just around the professional Luminess in North America. I think at the time of the IPO, there were some interesting slides which seemed to imply that the the profitability, and it will certainly be the KPIs and potentially the profitability was getting was improving. Is it is it fair for us to assume that that that trend has continued? And obviously, the reason why I'm I'm asking this is that that the the overall profit level in the division does seem to be somewhat subdued. So basically can you give us any sense on whether North America is actually contributing more to the online. So that was question number 1. Question number 2 is really going back to this this issue that we've heard several times, around, working capital, you've had a very big EUR 87,000,000 working capital inflow in 1 quarter. I'm curious can you can you sort of tell us how much of that is related, for example, to conventional lamps? And if I is a sort of simple, it's it's kind of dumb question. If I look at your inventory and receivables, they're about 2,500,000,000. If I assume that you shrink that business or you're able to work on that at 5%, you're coming out with a working capital release of something close to 100,000,000 So can you can you tell me why we won't continue to see working capital increases in future, please? Okay, good. Then I'm going to take the first question and I will let Stephane take the second one. Yes, we've seen an improvement also in the bottom line during the year. For the professional criminals in North America. So to answer your questions very clearly, yes, it is contributing to the improvement But without disclosing specific number, still, the performance of that business is below our average. So Ben, to your question on working capital, So yes, Q3 has been a very good quarter in terms of the inflow overall. And again, it's not just inventory. It's been across also countercyclable and payables. Now if you look at it with respect to the various divisions, The inventory has been very well managed in LED, especially given the growth. So there has been a very good performance there. And also in the profit business. If you look at BG Lamp, which is one of your question, For sure, over time, the working capital that is being used by BG Lamp is decreasing. And we fit this on a regular basis. I won't comment specifically on this quarter or on any quarter because then from one quarter to the other. And also as a comparison to the previous year, it makes the whole comparison complicated. However, again, on BGLAN, For sure, there is a reduction overall in terms of the working capital being used and so cash being extracted as sales are declining. And so, and I think you answered the question, but just to sort of clarify thematically, when I think about it on a 1, 2, 3, 4 year view, In principle, the BG Lamps business should be releasing working capital on an ongoing basis as as that business ramps down. I'm not barking up the wrong tree there. Okay. Yes. No. And absolutely that you get 3 to 4 years, yes, it's going to decrease. I mean, sales are going to decrease, and therefore, there is less working capital. Okay. Brilliant. Thank you very much. Thank you. And moving on to the line of Sven Vaier, UBS. Please go ahead. Your line is open. Yeah. Good morning. Thanks for taking my questions. The first one is following up on Lambs. You were mentioning halogen. I understand you don't disclosed the exact share of it, but maybe you can give us kind of a direction about the shares of halogen and the various businesses there and also the cost cutting I think you mentioned obviously the great progress you've been making on the footprint optimization, but the the kind of restructuring cost has actually been not so high this year. So is it still you benefiting from the measures you implemented last year? And your the kind of original plan and you had on the factory closures is not running more quickly than you thought some additional color maybe on that. And then just finally, just coming back on U. S. Professional lighting, you sounded like you still had a year on year improvement in Q3, but it was less strong than in Q2. Is that the right observation here? Thank you Yeah. Thank you very much, on the first two or questions related to Lamb's. Yes, halogen is, of course, very important to us, but maybe in relative terms, not as important to us as maybe to our number 2 competitor. So in the overall picture, it impact us because of the bans or the last time buys remains very limited. Let's not forget that the main distillates only to a part a relatively small part of the Allergen portfolio, a major next step, which really impacts us, will impact us is in September 2018 and also the burps, which look like incandescent with an allergen burner inside will be, will be banned in Europe and probably years thereafter also in all the geographies. So relatively the limited impact. On the closures, yes, of course, we benefit of all the movements we have done before. But what is also, I think, very important that we don't only do closures. We also do rightsizing in the factories which are still there. And I think what is a major, at least satisfying move for us all is that we have been able to find new destinies for a factory in Eden where we make ceramics and, a factory in Vince Hopton where we make special glass and that's not a closure. We really created a platform, which was interesting for somebody who was a real specialist in ceramic on the one site for UDEN and a specialist in VAS for the site in Minshallton. So it's not only about closures, and we also have seen that the volumes are declining a little bit less fast, closing factories is not necessarily our objective. It's a consequence. And on your question on U. S. Professional Yes, so we see the Americas still growing in Q3, but less than what we've seen in the previous quarters. Okay. And maybe just one final follow-up on Lambs, if there are any comments you have to make on the disposal of the Alltran lamp business to MLS is there's anything you would be expecting any change or is it simply too early to make a comment on that? Well, I think it's a I don't know which type of comment we could make. We see our market attractive and it's not one that people want to invest in that business, but no specific comments at this point in time. We are watching with a lot of attention, what is, of course, happening on the market and specifically for the transaction that you're mentioning. But no no specific things to sell on our side at this point in time. Okay. Thank you. Thank you. Thank you very much. 1 on your telephone keypad. 1 on your telephone keypad for any follow-up or new question. And As there are no questions in queue for the moment, I would like to return the call to the speakers. Yes, thank you very much, everyone. If someone has more questions, we don't hesitate to contact investor relations at the slide Many thanks for your questions and your interest. Thank you very much. Thank you very much. Ladies and gentlemen, this concludes today's conference call. Thank very much for attending.