Signify Aktie

Hello. Welcome to the Signify Third Quarter 2026 results conference call hosted by As Tempelman, CEO; Zeljko Kosanovic, CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions] I would now like to give the floor to Thelke Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's Third Quarter 2026 Earnings Call. With me today are our CEO, As Tempelman and our CFO, Zeljko Kosanovic. As will start with an update on our strategy and key business developments. Zeljko will then walk you through our financial performance before As returns to the call for the outlook and closing remarks. Our press release and presentations are available on the Investor Relations website. The transcript of this call will be made available shortly after. And with that, I would like to hand over to As.

Thank you, Thelke, and good morning, everyone. Thank you for joining us today. Now these third quarter results really, I think, show the progress that we are making in executing our strategy that we introduced at Capital Markets Day back in June. We strengthened profitability sequentially quarter-on-quarter, supported by pricing and cost actions, while the end markets actually remained quite challenging. Now we introduced the portfolio split of build and harvest. The build and harvest portfolio split and the specific playbooks for performance areas give us a much better visibility now and are really helping us to take more targeted action. So we are making progress in harvest. And I would say in build, there's still considerably more work to do.

So let me comment on both. Starting with Harvest, the Genlyte, our -- one of our North American business is in turnaround and the turnaround is progressing well. Costs have already come down. We are simplifying the product portfolio and also significantly reducing the number of SKUs. And of course, that then translates into improved profitability. On the OEM side, and turnaround too. That turnaround is also on track with another sequential improvement in profitability. We've lowered the cost base in OEM and positive pricing is also supporting gross margins despite continuous market softness. Earlier, we also announced at Capital Markets Day that all portfolio options remain open for our OEM business. So meaning we either divest, we partner or we keep and optimize. And to support this optionality and this flexibility, we have decided to separate the OEM business and make it stand-alone. So in fact, a carve-in and we expect that carve-in to be completed in the second half of next year. That might sound like a long time, but it's actually quite complex.

So while we do this, we will, of course, continue to improve the operational performance of that business. Then moving to Klite, our manufacturing business in China, where we have the same optionality. So we either divest or we keep. It's already partnered. It's a joint venture setup. And while we are improving operational performance in Klite, we are actively exploring divestiture opportunities with the parties involved. Too early to conclude on that, but it is actively going on.

Now turning to the build part of the portfolio. India remains a powerhouse for Signify in lighting, contributing both to growth and profitability. And we also see opportunities to use our brands and our distribution power to expand into adjacent categories and fans were our first step, and I'll come back to that in a moment. Now Professional Europe, a large business requires a turnaround. We got to be honest and face that the performance over the past 3 years has not met our expectations. Market conditions have played a key part, but we've also not been adapting fast enough. And under new leadership, we will rightsize the organization and strengthen our execution capacity in key countries, empowering really our local country teams operating close to the market, close to customers. And this will yield significant cost savings and improved competitiveness. And with these changes underway, I mean, 2027 will be a transitionary year for Europe because these changes take some time.

Moving to another of our build businesses, Consumer. Our priorities are growth and productivity. So we are investing in customer acquisition to grow connected, our -- Hue offer, while maintaining profitability in the harvest area. So we are also putting in place an additional cost reduction program for consumer. We will reinvest part of the savings in growth and both operating leverage and lower indirect costs will drive profitability up. And finally, I do want to mention that we are reviewing our R&D spend. Actually, that is about to be completed. And we are sharpening our investment priorities and taking cost out -- significant cost out of our R&D spend to improve returns on R&D. And those returns need to come through -- need to really come through in sales from innovation and in lower-cost products. That's where -- how we target our R&D. It needs to lead to more revenue, more profitability.

And as a reminder, about 40% of our R&D costs actually relate to product redesign and value engineering. So this is about -- not just about innovation. So these are the actions that we are taking to turn the strategy into better performance. We have clear priorities for each part of the portfolio, and we are happy to take your questions on it.

Now then we wanted to share a few examples as we always do. Let me illustrate the capabilities we have in professionals. You see here on the slide, and you also saw it on the opening slide when we started the call. It concerns a project in Romania and where we bring an iconic landmark to life by combining architectural luminaires, lighting design and controls in one integrated lighting solution. And we deliver this project with our local partner, Luxten and multiple lighting solutions illuminate the facade, the roof line, the dome and all the architectural details. I think it's a really cool project and a good example of the value we bring to complex projects through technology, application expertise and very important, our partners.

The next example I wanted to share is winning with adjacencies in India. I referred to it earlier. Our fans business shows that we can build on our local strength to grow beyond just lighting. We entered India's EUR 1.4 billion fans market in 2021 under the EcoLink brands, local brand. In '24, we stepped up our focus on design-led innovation in brushless direct current fans, so-called BLDC, BDC brushless direct current fans. And these motors make fans more energy efficient and quieter than conventional alternatives. So it was a real opportunity to get in the market with this new technology. We have supported the business with brand investments, including advertising, digital campaigns, sponsorship on the Indian Premier League and in-store activities. And you see it works. Fans sales grew 61% in just the first 9 months compared to last year across more than 11,000 retail outlets. So this is a very good example, I think, of how we can use our distribution and brand capabilities and product innovation to develop adjacent business. And it gives us also a foundation as we assess further opportunities in India.

Now moving to the sustainability side and of course, our Brighter Lives, Better World 2030 program. We continue to see progress against the 4 measures in our program. Year-to-date, revenues from products and solutions that deliver benefits beyond illumination, i.e., beyond lighting, reached 36.3% of sales. So that's well on track towards our 2030 target of 41%. Our LED products sold under the program have contributed cumulative energy savings of 12 terawatt hours and the annualized reduction in our portfolio, carbon emission intensity reached 11.1%. And all these things are important in the context of large-scale electrification going on in the world.

Signify Circle revenues reached 21.8% of Professional Europe sales. That program is very much targeted towards Europe -- on Europe and towards 27.5% target for 2030. So basically, all 4 measures are on track. We're also very proud that we have again received the EcoVadis Platinum rating for the seventh consecutive year with a record score of 88 out of 100. So placing us in the top 1% globally, and that is very much where we would like to be. Now with that, I will hand it over to Zeljko to discuss the third quarter financial performance. Zeljko?

Thank you, As, and good morning, everyone. So I will now walk you through the third quarter financial results, starting on Slide 9 with the group results. So sales were at EUR 1.367 billion with a comparable sales decline of 3.4%. We achieved positive pricing across all businesses, while demand in our end markets remained weak. Adjusted EBITA was EUR 145 million, giving an adjusted EBITA margin of 10.6%. This includes a net benefit of EUR 28 million from U.S. tariff refunds equivalent to 210 basis points of margin. Excluding the net tariff refund benefit, our adjusted EBITA margin was 8.5% compared with 6.1% in the second quarter and 9.7% in the third quarter last year. Gross margin strength and cost reductions supported underlying profitability, while the lower sales in consumer continued to weigh on the performance. Free cash flow increased to EUR 118 million from EUR 71 million last year, supported by working capital improvement and tariff refunds.

Going to Slide 10 on Professional. So the Professional business delivered resilient underlying profitability in a still challenging market. Sales were EUR 921 million with a comparable sales decline of 1.5%. Project activity remained resilient in the U.S. and the rest of the world, while stock and flow continued to face soft demand across most geographies. Agricultural lighting performed strongly during its high season. Adjusted EBITA was EUR 115 million with a margin of 12.5%. This includes a 200 basis point net benefit from tariff refunds. Excluding this benefit, the margin was 10.5%, stable compared with last year. So gross margin expansion and fixed cost reductions fully offset the impact of lower volumes.

Turning to Consumer. Sales were EUR 283 million with a comparable sales decline of 5.3%. The decline was mainly driven by lower connected sales, partly offset by strong growth in luminaires and in India. Within Connected, sales continued to be affected by retailer destocking in response to the elevated inventory levels carried since the start of the year. As retailers reduced these inventories, their orders remained below underlying consumer demand. Importantly, this is not the full picture of consumer demand. Hue sell-out grew at mid-single-digit rate year-to-date, and we continue to gain market share, growing ahead of the connected lighting category. So we are working closely with retailers to bring ordering pattern into closer alignment with sell-out and reduce the volatility between quarters.

Adjusted EBITA was EUR 19 million with a margin of 6.8%, including a 230 basis point net benefit from tariff refunds. Excluding these benefits, the margin was 4.5% -- so the decline primarily reflects the lower profitability from connected, thereby reducing fixed cost absorption. As previously mentioned by As, we are taking targeted actions to improve productivity and reduce the fixed cost base while continuing to invest selectively in customer acquisition and innovation. So these actions are expected to support the business over time with a sizable part of the additional cost benefit coming through in 2027.

Going now to OEM on Slide 12. So OEM continued to face soft markets, particularly in the U.S. and Europe. Sales were EUR 88 million with a comparable sales decline of 6.7%. Strong pressure remains on volume. However, we achieved positive pricing in the third quarter. Adjusted EBITA increased to EUR 5 million with a margin of 5.9% compared with 4.7% last year and 4.6% in the second quarter. Gross margin expansion and the benefits from our cost reduction actions more than offset lower volumes. There was no material benefit from tariff refunds for the OEM business. So the execution of the turnaround plan of our OEM business is on track, lowering the business cost base and sequentially improving the structural profitability.

Now in Conventional, sales were EUR 67 million with a comparable sales decline of 12.2%. Specialty Lighting continued to grow, partly offsetting the structural decline in general lighting. We continue to outperform the declining general lighting market, supported by strong price discipline. Adjusted EBITA was EUR 14 million with a margin of 21.3%, including a 550 basis point benefit from tariff refunds. Excluding this benefit, the margin was 15.8%. Gross margin expansion supported solid underlying profitability against a high prior year comparable. We remain focused on disciplined pricing and cost management while carefully managing the structural decline of the business.

Now turning to the year-on-year margin bridge. So the adjusted EBITA margin increased by 90 basis points to 10.6%, including the 210 basis point net benefit from tariff refunds. Excluding this benefit, the margin was 8.5%, below the 9.7% reported last year. Lower volume reduced the margin by 100 basis points. Price and mix combined contributed a positive 80 basis points. We achieved positive pricing across all 4 businesses, reflecting consistent price discipline and helping to offset higher bill of material costs. Lower cost of goods sold contributed a further 70 basis points. Together, these effects provided 150 basis points of support. Within cost of goods sold, however, we saw different dynamics. We faced higher bill of material costs as expected from raw material and components, but also energy and transportation.

Our procurement teams mitigated a significant part of this exposure through sourcing actions. This was more than compensated by the effect of productivity improvement on other manufacturing and supply chain costs and also lower tariffs compared to last year as mitigation measures took effect. Indirect costs reduced the margin by 40 basis points as higher incentive accruals and other cost increases more than offset the cost savings that were achieved. I will provide more detail on our indirect cost in the next slide. Currency had a negative impact of 100 basis points, mainly driven by the appreciation of the Chinese yuan against the euro. Other items had a further negative impact of 30 basis points. So we do recognize that the progress we are making in our cost reduction program is not always immediately visible in our reported indirect costs. And so we want to provide some additional clarity on the underlying developments shown on Slide 15.

So first and foremost, our cost reduction program remains on track. We delivered EUR 37 million gross savings in the third quarter, bringing the total for the first 9 months to EUR 98 million. Overall, this corresponds to a reduction of salaries and wages of approximately 10%, consistent with the evolution of the workforce during this period. Within the third quarter, these savings year-on-year were more than offset by the effect of higher employee incentive accruals true-ups, the salary inflation and other cost increases. The largest offset of EUR 25 million related to employee incentive accruals was especially pronounced and unusually pronounced in Q3. This is due to the unfavorable employee incentive accrual comparison, reflecting, on one hand, the true-up increase of accrual this year compared to, on the other hand, the true-up releases in the prior year.

Salary inflation added EUR 9 million and other costs, including outbound transportation, agent commissions and advertising and promotion added a further EUR 11 million. Currency and other items increased costs by EUR 4 million. As a result, the adjusted indirect cost in the third quarter increased by EUR 12 million year-over-year to EUR 451 million. Looking at the first 9 months on the right-hand side, adjusted indirect costs decreased by EUR 51 million to EUR 1.356 billion, driven by the gross cost reduction of EUR 98 million. So overall, the savings from the execution of our cost reduction program are coming through, and we are on track to reach the fully annualized run rate entering 2027, with further specific cost actions being implemented in different performance areas, in particular in Professional Europe and Consumer as outlined earlier.

Let me conclude now with working capital. Working capital was EUR 331 million at the end of September, equivalent to 6.1% of sales. This represents a year-on-year improvement of EUR 169 million or 230 basis points, mainly driven by lower inventories and receivables. Our continued focus on working capital improvement supported our free cash flow of EUR 118 million in the quarter alongside the benefit of tariff refunds. With that, let me now hand back to As for the outlook and the closing remarks.

Thanks, Zeljko. Indeed, what about the outlook? So indeed, the market conditions, right, remain quite challenging. You see the Professional Europe under pressure, I mean, particularly on the public side, so the municipality spend on outdoor lighting is a weak market. But also residential in the U.S., we see some weakness, and we see that back in our daily order intake. Now it is to be seen what happens around Thanksgiving and Christmas on that. And then the consumer comparable, where we had quite a few weeks of stock up last year also makes it a bit tough. So this means that altogether, we expect that fourth quarter sales growth to be in line or slightly below the third quarter. So that's our best estimate for now. And against this background of sales market, we confirm our full year adjusted EBITA margin guidance at the higher end of the 7.5% to 8.5% range. And that is, of course, including the tariff refunds received for the third quarter. If you would exclude those, we would be at the lower end of this range, but still within.

The progress we have made in reducing our indirect cost base is expected to support the bottom line profitability in the fourth quarter and of course, as our cost program reaches its full run rate by the end of the year. Our free cash flow guidance remained unchanged, 6.5% to 7.5% of sales. So we are making progress in harvest, and we are taking further actions where performance needs to improve in our build portfolio. Our priorities are clear. I would summarize them as execute the turnaround, reduce costs and invest selectively in growth. We remain focused on these actions within our control, a lot of self-help to improve performance and build a stronger and more focused Signify. I think this concludes our remarks, and we would like now to start the Q&A session and hand it back to the operator, please.

[Operator Instructions] The first question comes from Ines Lefranc from Goldman Sachs.

I just wanted to ask about the free cash flow guidance. Given you've increased your EBITA margin -- your margin guidance on the back of tariff refunds, why haven't you increased the free cash flow guidance too?

Thank you for the question. As, just said, we confirm and maintain the free cash flow guidance. Now when you look at the profile of our free cash flow in the fourth quarter, of course, it's -- and it's the usual seasonality. We have a higher concentration of the cash in the fourth quarter. So there is no specific element related to the tariff. First of all, our guidance does not include any further tariff refunds in the fourth quarter, and we have not qualified specifically the effect of the tariffs, but we do confirm the guidance for the full year.

The next question comes from Adam Parr from Rothschild & Co.

Can we talk perhaps a little bit about price mix and any detail here would be very helpful. So at the group level, was -- if we sort of disaggregate price/mix into -- price and mix was mix positive. And if we look at price by division, perhaps without putting any numbers to them exactly, could you perhaps help us with the divisions in terms of highest to lowest pricing in the quarter? Because I know you said that price mix was up -- sorry, pricing was positive in all businesses, but any ranking help would be very appreciated.

Yes. Indeed, Adam, I can say a few words. Price/mix was positive across the group. And like you said, Adam, achieved in all 4 businesses. And overall, I think better pricing in areas where we have higher differentiation and more concentration and worse in areas that are more commoditized and more fragmented. So if I translate that for you, I mean, professional pricing was slightly positive, strongest in India and Rest of World and Europe lagging, particularly stock and flow. Consumer pricing turned positive overall, good progress in Europe and Rest of World. OEM also across all regions. And then conventional is, of course, where we have a lot of discipline and a lot of pricing power. So there also pricing remained positive. So by geography, I would say Europe remains the most competitive market, although pricing has eased versus last year.

So -- and in the U.S., I would say pricing remains positive. But what we have seen is, and that might be due to the fact that you see some of these price refunds coming into the market. We don't see the same pricing discipline in U.S. as we saw in previous years and quarters. So their margins are clearly under pressure, particularly in the stock and flow. So that is something that is worth highlighting. We'll see how that plays out in the coming quarter.

The following question comes from Max Yates from Morgan Stanley.

I just wanted to ask about your EBITA bridge because it's quite unusual to see you being able to get price when your COGS are coming down. So you talked about obviously your rising input costs, but those were being offset by some of your supply chain actions. So I guess I was just trying to understand, do you think you can continue to see this trend where effectively your kind of aggregate cost of goods sold are coming down and you're able to keep pushing up price because normally, we've seen when your costs come down, your price comes down as well and you essentially have to give it back to competitors to remain -- give it back to customers to remain competitive. So just sort of how sustainable you think that trend is, anything particularly outsized in that number? Or can that continue for the next few quarters?

Yes. Thank you for the question. You're totally right. I think as I mentioned, and this is -- as we always indicated, we do manage the gross margin as a whole, and you have many, many dimensions at play. So it's true that what we've seen is -- and that's what we have been driving and anticipating is to adapt and to recalibrate the price positioning also in line with what we see happening in the bill of material. So the bill of material inflation is impacting. However, it's fair to say that -- and this is really a tremendous job done by our procurement team to really contain and mitigate to the extent possible the effect and the timing of those input cost impacts or in the phasing. So that is time also to get the full price through.

At the same time, I think you have one element, which is, of course, a bit of a consequence of the way the increase of the tariffs last year compared to this year, right, we see an easing because we've been taking a lot of measures to reduce the exposure, or to adapt the exposure. So that's coming through as a positive element year-over-year in our COGS. And third, and this is a key element also that is relevant for the way we are executing our turnaround strategy in some of the performance area, where we are reducing the fixed cost base, so the supply chain manufacturing, which is an element that is very important to support, for example, the continued improvement of profitability in OEM.

So on that third part, it's really self-help execution and cost resizing, which is not dependent on -- and this is helping us in the overall gross margin management to see, as you indicated, an impact that more than offsets the effect of the raw material or the bill of material inflation. So we keep doing with a lot of agility to make sure that overall, to your question on how sustainable it is, I think gross margin resilience for us is a very important element. So we've been driving that across very volatile, very dynamic period, and we expect to be able to continue to do that in the coming quarters in a very structural manner.

Yes. But I think, I really think that this is an area of outperformance, and we can be proud of that. The market out there is still inflationary, right? I highlighted last time that we have this increasing tightness on components and semiconductors. That has not gone away. We don't expect supply chain disruptions, but clearly, it is inflationary. So we manage that very proactively. We invest in stocking. We do capacity reservation, but we also do the value engineering. So that all justifies price increases in terms of our competitive positioning. But if we manage our BOM and COGS well, like Zeljko laid out, that helps profitability.

No, I guess -- look, I mean, I guess it's just interesting because like I think if I had asked you 9 months ago and you said, how are we going to get margins up? I think you would have told me we're going to try and keep gross margins flat and then we're going to take out indirect costs with our EUR 180 million cost savings, and therefore, we'll get SG&A leverage. And in fact, what's happening in your business is your indirect cost saving will be wiped out by other stuff and your gross margins are going up, so your margins are moving up sequentially. So I guess it's a slightly different mix of sequential margin expansion than I think we would have expected.

And then I guess that raises a question over whether you can keep expanding gross margins because it actually looks like the indirect costs are not really coming down, they're being offset by other stuff. The cost savings being offset by other stuff. So I guess that's why I'm curious because it seems much more important for your margin expansion with gross margin expansion than I would have originally...

Yes. No, I understand the way you look at the dynamics. Do you want to comment a bit, Zeljko on the topic of indirect costs because I don't want to leave you with the impression that, that is all wiped out. Actually, we are structurally improving the profitability of the company by reducing indirect costs...

Yes. First a few clarification on the gross margin expansion. I think if we look at it, of course, normalizing the effect of the tariff refund, we would be around 40%. So let's say, slightly improving, but it's not a major expansion. So it's quite consistent with what we indicated, right, stable on the back of a comparison base that was strong. So maintaining close to the 40%, I think that's the gross margin stability that we have indicated. Then at the same time, on the structural growth savings that are coming out of the cost reduction program that we have launched. That's also coming through. And as you indicated, and that's, I think, a very, very unusual element that comes with the effect of how the annual incentive accrual true-up plays out.

I think typically, it would not be a very material element. The annual incentive overall represent less than 5% of the total indirect cost. But in any given quarter, in particular in the third quarter, when you have, on one hand, a comparison of a release that was on a true-up last quarter or last year in Q3 versus an increase, then the combined effect of that takes away a big part, let's say, in our indirect costs, a big part of the structural savings that have been realized. So just to be clear, gross margin in line stable cost reduction happening as per the plan. So I think this is quite in line, in fact, with what we had indicated, as we said 9 months ago.

Okay. Just one very quick thing, which also doesn't make very much sense to me is your currency in your EBITA bridge is still heavily negative, and it's turning positive on your sales. So how long is that going to be a point drag to your EBITA? And we're now seeing positive currency on your top line. Should we expect that to go away in the coming quarters?

Look, I think it's always a very complex, but try to keep it very simple because this is the central point. The weight of the Chinese yuan on our bill of material and cost of goods sold is significantly higher than if you look at the sort of basket, the mix of currencies in our top line is obviously very different. And that's the main element where you see the appreciation of the Chinese yuan compared to the euro or the U.S. dollar has been quite significant. We have a hedging mechanism that works and brings the benefits, but you still have -- it's basically another flavor of material inflation, if you like, which is fully taken into account in the way we manage our gross margin. So to your question, the relation between our FX on top line and on EBITA is different mainly due to the effect of the weight of the Chinese yuan on our bill of material, but this is fully managed, anticipated and incorporated on how we drive our gross margin management as we commented on earlier.

The next question comes from Rajesh Patki from Barclays.

I -- please check if I understood it right. The actions you're taking in the Consumer division, are those expected to deliver incremental cost savings of the ongoing EUR 180 million plan?

Yes, Rajesh, the short answer to that is, yes, that is correct. So what we'll see -- what you saw in the past is that when top line came down, we had to reset our indirect cost, and we did that company-wide. And the last kind of corporate program we did was the program of the EUR 180 million cost takeout, which is on track, and we have the full savings bank run rate at end of the year. So that's that program. On top of that, we are now taking much more focused actions in the performance areas where we see productivity improvement opportunity, yes.

So I mentioned Prof Europe, where we will take out a significant amount of cost. But equally on consumer, we will drive productivity up, and that comes also with cost savings. Part of those cost savings, we will reinvest in new product innovations and acquisitions of new households, but also some of that cost savings will find its way to the bottom line. So that is indeed, to your answer, yes, that is on top of the EUR 180 million that we communicated earlier.

And how should we think about the net impact from this from a profitability perspective?

Yes. So we have -- we are still working through all those productivity increase. What I can say at this point it's not going to be insignificant. But of course, once we have the numbers and the plans in the more advanced stage, and then we will share that with you as well. So we can make that commitment in the performance areas where we make productivity improvements. We will get back to you about the magnitude of that and also how that affects profitability. But it's a bit early to call numbers on that today.

Right. And lastly, can you talk about what you're seeing as the key bottlenecks for executing the harvest part of your strategy?

When it comes to harvest key businesses like lamps, right, we are managing that very well. So both the brand strength as well as our distribution brand, actually, that is -- that business is performing even above our own expectations. So when it comes to the divestments, well I indicated before, we have 3 assets that we said we have all options open. So I can take them one by one. The first one is OEM. So in OEM, we said we could either partner, divest or keep. In any case, no regret, we will improve the performance of that business, and that is happening. So we saw sequential improvement of profitability.

Now you have to imagine that we work in 50 countries with a Signify country setup and all those business lines are part of that integrated Signify setup. So if you actually want to divest that business, you first need to carve it in, right, from the bigger Signify corporate infrastructure. And that's what we're currently going through. That means that you need to create own legal entities that you have to run it on its own IT system with its own services, its own functional support and all that. So we are working through that. And that is all straightforward.

So -- while we are doing that in the course of '27, we will then proactively engage market and see whether there's better owners for that business. If we don't find that, then we will keep optimizing it ourselves. But that is the trajectory for OEM. On Klite, our Chinese manufacturing plant, that is where we already have much more of a stand-alone setup. So we don't have that same kind of carve-out or carve-in challenge that we have on the OEM side. But there, we have to deal with partners and also the limited buyer universe in China for such an asset. So I'm confident, right, we can conclude at some point, but it's -- we need to continue conversations for now. And then on the conventional specialties business, and I want to highlight that it's not all conventional. So our conventional business, you saw it's performing well for us. We are managing that decline very proactively and profitability is at a very good level.

But the conventional business exists of the general lighting business and then the specialty lighting business. We have said all options are open for the specialty lighting business. So there, you need to think about purifications and other applications beyond lighting. That business has grown in the last 2 quarters. That is a business that is not declining and where market consolidation could make a lot of sense. And that we are also preparing as a kind of stand-alone setup in the course of next year, and then we will also explore market opportunities for that. So that's where we are in terms of our harvest, Rajesh. I hope that answers the questions and gives all of you a bit more insight about where we are at.

The following question comes from Chase Coughlan from Van Lanschot Kempen.

I wanted to ask about consumer. So obviously, a weaker quarter than at least we expected. I'm curious on the commentary on the destocking and the sort of detachment from underlying trends. Correct me if I'm wrong, but I would have thought that usually Q3 would be a period where a lot of the retailers were sort of actually building up their inventory ahead of usually what is a strong Q4 in terms of seasonality. Is that not really the case today? Or could you provide any more sort of color around how you expect this destocking or the channel problems to continue?

Yes. Thanks for the question, Chase, and it's spot on. There are a lot going on. First of all, let me put in perspective the performance in consumer outside of connected, so our Hue proposition has actually been good, good in lamps, I mentioned it before, but also steady growth in luminaires and in India. So that's a good part of it. The challenge is on connected, so our Philips Hue and proposition in particular. Now if I look at markets, what we basically saw in the third quarter is that in the U.S., there's still growth in the category. In Europe, we saw a decline in the category. So that tells you something around discretionary spend in Europe in consumer markets.

The positive side, though, we outperformed in both regions. And Zeljko mentioned it before, our year-to-date sell-out of Philips Hue year-to-date is about mid-single-digit growth. So we are still growing, right, in terms of the number of customers buying our Philips Hue product, which is positive. However, you saw that you asked about that sell-in/sell-out dynamic. What we saw is that we have seen the channel stocking up significantly in the end of third and particularly the fourth quarter of '25. And that also meant that we with very high stock levels into '26, and we have felt that year-to-date in our sales. What we are doing is we are now trying to manage that volatility in channel stock levels much more proactively.

So obviously, we want to stock up the channel also in anticipation of all the festive holidays and events to sufficient levels that we can cater for that increase in sell-out in the fourth quarter, but we don't want to end up in a similar situation where we were last year, where you had too high stocks in the channel. So that's basically the dynamic that we need to -- that we are actively managing on a day-by-day basis. While we are doing that, I mentioned that we are taking the action to invest in acquisitions of new households to bring new products in, to bring that sellout even more up and also to take actions to -- on the cost side to increase productivity. So it's really those 3 things: reducing costs and bringing up productivity, acquisition of households and actively managing stock levels in the channel. That's our consumer story for the quarter.

Okay. That's very helpful. And maybe one quick follow-up on consumer as well regarding the margin. So I think sort of excluding the refund impact, the margin fell again quite a bit, basically halved. I mean, just sort of looking forward, if we see a larger volume recovery, do you still expect that business to, let's say, recover margins back to what we were doing historically? Or is there sort of anything structural that has maybe made this business a bit lower margin going forward?

No, we have no reason to believe it's lower margin, actually, quite the opposite. As we grow it, there's operating leverage, and we see margins returning to that level, if not improving.

The next question comes from Wim Gille from ABN AMRO-ODDO BHF.

This is Wim from ABN ODDO. I have 2 questions. First, on Prof Europe. During the prepared remarks, you said that you didn't deliver to the expectations you had in the last 2 years. Can you give us a bit of a flavor of how much market share did you lose over the last 2 years? And also in which countries you are struggling most in Europe in terms of market share performance? And how long does it take for you to basically claw back that market share and prepare or repair the positioning there?

The second question would be on the OEM business. Also in the prepared remarks, you mentioned that the OEM did not see any meaningful impact from the U.S. tariffs. looking at the nature of the business, it sounds a bit counterintuitive to me. Is this more a reflection of internal transfer policies? Or is this a realization that the OEM business is not active in the U.S.

Thanks, Wim. So, maybe I can leave the OEM question to you later. Let me start off with your question on Prof Europe. The -- and you made the implicit assumption that we've lost market share, but let me unpeel the onion a little bit here. If you look at our Prof Europe business, about 30% to 35% is stock and flow, so it's traditional distribution and trade. And then there is the projects. And within projects, we distinguish public projects. So this is street lighting, outdoor applications, indoor manufacturing buildings and so on. If I look at all those 3 segments, we have seen quite a bit of competitive pricing pressure over many quarters. And therefore, just the peak time skew, we've seen a lot of peak down in stock and flow. I think it's fair to say we've also lost some market share there, particularly on the lower end of the product portfolio. And it's actually not where we want to play strategically going forward. We want to play in more the value-add higher end of the portfolio in stock and flow. So that has yielded, of course, lower -- some lower sales in stock and flow over many quarters.

The price pressure in stock and flow is now flattening, right? So we see it now very close to the 0 point. So I'm confident that also going forward, we can work with our distributor partners around upping the competitiveness of our offer on -- across all the stock and flow, and that should then yield into a flat and yet growing again in stock and flow. On the project side, Europe, unfortunately, has just been very weak market when it comes to government spending on street lighting. So where we saw huge investments in the past in France, but also in places like Belgium and the Netherlands, we have not seen that in recent quarters. And then, of course, year-on-year comparison, you see that coming down. Is there no market out there? Yes, there is still a market out there.

In a country like France, only 60% of the street lights are on LED and the same goes for the Northwest European countries like the Netherlands, let alone the Mediterranean. There is still a lot to go after. Yet we currently don't see the public investment into LED. We are actively engaging with municipalities and governments. But obviously, the first step into electrification is a lot easier to make than getting the whole system onto LED. What we also see is LED for LED replacement. So some of these LEDs have been installed now 8, 10 years ago, and they need replacement.

So there is clearly a market out there for outdoor and public lighting, yet it has been very weak over recent quarters. Hence, we saw a decline. I don't think we've lost market share in that space. The market has just been weak. And then on the indoor side, it's more competitive space. There, profitability is not to our liking. So we are clearly addressing there around adjusting our cost base. But when it comes to sales in indoor, our market share has been more or less flat, up a little bit in one quarter, down a little bit in the other. And that is, of course, very project dependent.

So I would say, all in all, Europe, price pressure stock and flow, lost some share on projects. Market has been weak and all that together has been quarter-on-quarter decline. What are we doing about it? We are much more rightsizing our organization, take out a significant amount of cost, with more important, bringing back that commercial and partnership power into the key markets. And on that, your question then was around -- give me a bit of a geography perspective. Actually, Mediterranean is pretty good, particularly Spain is working really well for us at the moment, where we see a lot more challenges in France, right? That is -- and the Northwest Europe is somewhere in between. So that is the dynamic in terms of geographies.

Maybe on the -- briefly on the question on OEM. So I think the effect or the nonmaterial effect is logical considering that the sourcing of our OEM sales in the U.S. was at the time when the tariffs implement was insulated for the most part coming from countries I mean in North America. So I think the exposure at the time was limited OEM so it's quite logical and consistent that the effect of the refunds is in line with us looking at Q3.

The next question comes from Marc Hesselink from ING.

My first question is on -- you mentioned in the press release that you had some extra investments in your sales incentives and your marketing. And if you want to link that to the comparable sales growth, those kind of investments, is it -- they take a couple of quarters to see the full effect? Or is there also -- or is it a dynamic that if you hadn't done that, then your [indiscernible] might have been -- or your volumes might have been even a bit lower than what they are today? Is it a bit of a time there when you see the effects on these extra investments?

Yes, Marc, I think the -- so you mentioned 2 things, right? There was this -- the costs related to the incentives and then there is the marketing investments. And maybe I'll leave it to you to comment on the incentives, Zeljko.

I think the -- again, on the investment, it's a bit different. But on the annual incentive and as we said, which is an unusual effect on the comparability. I think the way it works, it's basically on your annual incentives, they are accrued throughout the year, and this is -- so we reassess every quarter the provisions based on the company's performance and what are the expected payout. So this adjustment can result in either additional accruals or releases. So that I think the dynamic of that, you can't really relate it right to the ROI cycle of a typical investment. Again, as I said, this is just a composition or a piece of our compensation structure. It's less than 5% of the total indirect cost, but the accrual movement in any given quarter can create a bit of volatility.

So I think that has to be put aside. Then when you look at the other real investment, a few things that are shown in the additional bridge we've added. I think you have in our indirect costs, a bit of variable components, right, in agent commissions, in the U.S. or outbound transportation that are a direct relation to the volume of sales. So there, you would say this is really like a very, very short cycle kind of investment. It comes with the execution of our sales. And then you have the [indiscernible]. And then on [indiscernible], it's a bit more -- we have a very defined ROI model, if you like, to really look at the cycle time of realization of payback of those investments, in particular, linked to our consumer business.

Consumers in a much shorter cycle. So they are -- with the TikTok and online campaigns, I mean, you have immediate payback in some of the investments we do on the prof side, it has a longer lag effect. Of course, incentives for sales always work. So we have our sales clearly on incentives. And for the organization as a whole, of course, we have a small part is variable pay, and that is on a few financial -- key financial metrics to make sure that the interest of the company and the interest of our shareholders are fully aligned.

Okay. That's clear. And my second question is on the comment of the softening of the U.S. prof market. I guess that's the larger country, you have a bit more visibility also maybe going into next year. So what's happening there? And how do you have any visibility on if it's very short term? Or is it maybe a bit longer?

Yes. So there's -- again, P and Q answer to this question. On the pricing side in the U.S., I highlighted that normally where we see if bill of material or cost of goods sold go up, then the market typically brings price up accordingly, and that protects gross margin across the sector. We have not seen that same discipline in the U.S. market in the recent quarters. And I don't know for sure. But one of the reasons could be that, of course, quite a few players now bank refunds and therefore, have different margin profiles than they would normally, in a normal situation would have. So that might take a bit of time up to the end of this year to normalize if this refund effect disappears, and we need to go back to proactive margin management through pricing. But that's hard to tell, but that is one of the reasons why we think there might not be the pricing discipline in the U.S. that we normally see.

And then there is the volume side of things. So clearly, there are sectors that are still growing very rapidly. No surprise, data centers. There's also infrastructure projects, although that's a bit slower. Hospitals, that's still strong. The residential sector, however, has been weak. And a large part of our Cooper business, which is one of our positions in the U.S., has a stock and flow business that also serves that residential and also office segment. And that is where we see weakness also in the order intakes. So is that going to last for long? Well, we'll see. But I want to be a bit cautious there in terms of the fourth quarter.

Ladies and gentlemen, we only have time for one more question, and it comes from Emanuele Sartori from Kepler Cheuvreux.

I just have one -- maybe I appreciate to touch on the Q4 organic growth now expected to be in line or slightly below Q3 and obviously, the U.S. project demand also softening, I'll just mention. I would be interested if you could share where do you see the greatest opportunity to protect the margins in Q4? Is it primarily professional or the consumer side with the cost savings measures mentioned? And if I can add on this, are these initiatives you mentioned going to add some restructuring cash outflow, I'm thinking compared to the EUR 50 million increase compared to last year? Or is it more a '27 question?

Yes. Okay. Well, maybe we make this a joint answer, Zeljko. I mean in terms of -- I want to warn a little bit around not all top line drops is a big concern. So we are very much transforming the company, resetting it. And also as part of the turnaround, we cut stuff that is not profitable. So there's some self-help there as well that we really focus on where we see the growth, but profitable growth, right? So that is performance area by performance area. And of course, we try to invest and grow the parts where we have operating leverage and where we see good future and good profitability. So you will see, and we will highlight that in some of our performance areas, you see some top line decline, but that's by choice.

But on the market weakness, the maintaining profitability is true across the board. So we manage that very actively. Where you can move much faster is, of course, in Rest of World and in U.S. In Europe, this cost takeout always takes more time because it requires consultation and long intensive processes. But we feel confident that despite some of the dynamics that we discussed in this call that we can keep that margin resilience. It might be a bit up and down quarter-to-quarter, but I'm not afraid of that.

On your question on how the levers to protect profitability in that context, number one, sustaining gross margin resilience and discipline, right? We talked about it earlier with all the different levers in, and we'll continue to do that. Second, continuing to execute on our cost resizing program. And I would say, linked to that, continuing to drive the implementation of our execution playbook. So it means that the sequential -- so it really means that we are continuing to drive the structural sequential strengthening of our profitability. And we do that still in the midst of headwinds from a volume perspective with a bit more support from price. But we continue to do that.

Of course, Q4 is our highest season, let's say, in terms of sales. So we get also, of course, an element of operating leverage supporting sequentially the improvement of the profitability. But I think it's continuing to -- on the path that we have engaged to sequentially strengthen regardless of the dynamics that we see on the top line and keeping the resilience.

On your question on cash out, we have -- we are in line with what we had indicated. So the effect of the cash out -- restructuring cash out in 2026 that we indicated will be roughly EUR 40 million to EUR 50 million higher than last year. So we are totally in line with that. So totally in line with the execution of the plan, in line on the cash out and, let's say, the payback of the restructuring program is very much in line with what we expected in around 1 year as we have typically seen.

Okay. I think this ends the call. Thank you all. We hand it back to you, Thelke.

Yes. Thank you very much for joining the earnings call today. If you have any additional questions, please reach out to us, the Investor Relations team. Thank you, and enjoy the rest of your day.

Welcome to the Signify Second Quarter and Half Year 2026 Results Conference Call, hosted by As Tempelman, CEO; Zeljko Kosanovic CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions]

I would now like to give the floor to Thelke Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's Second Quarter 2026 Earnings Call. Before we begin, I'd like to draw your attention to forward-looking statements, risks and uncertainties and non-IFRS financial measures disclaimers on this website -- on this slide. With me today are our CEO, As Tempelman and our CFO, Zeljko Kosanovic.

During this call, As will discuss the highlights of the quarter and key business developments. Zeljko will then walk you through the financial performance in more detail. As will then come back to discuss the outlook and closing remarks. Our press release and presentation were published this morning at 7:00 a.m. on our Investor Relations website. A transcript of this call will be made available soon after the call.

And with that, I would now like to hand over to As.

Thank you, Thelke, and good morning, everyone, and thank you again for joining us today. Our second quarter results reflect a mixed market environment, and we have started to implement the strategy we introduced at Capital Markets Day in June.

Now looking first at our Build portfolio. Professional projects continue to grow in the United States and rest of the world, where we are outperforming the market. At the same time, professional stock and flow, the trade side of the business, remained weak across most geographies, particularly in Europe.

Now in our Consumer business, the connected lighting performance needs some explaining. Sell-out, so meaning the sales to consumers, remained strong and was growing, and that is also reflecting the strong underlying demand for our products. However, the retailer destocking continued to weigh on our sell-in as it did in the first quarter. And this impacted both our top and bottom line. On the positive side, we delivered continued growth in India and luminaires growth worldwide.

Now then moving on to the Harvest portfolio. That is our more commoditized upstream manufacturing activities, including Klite and OEM continued to face demand challenges. Our lamps manufacturing company, Klite, was affected also by component availability and cost inflation. At the same time, consumer lamps sales were resilient. And our Conventional business delivered a strong recovery in profitability, and that is a good example of an effective execution of our strategy.

Importantly, the turnaround playbooks for underperforming areas are in full execution, and we know what needs to be done. We are seeing positive traction from pricing with further targeted increases underway alongside ongoing cost actions and operational improvements. And together, these actions support our confidence in delivering stronger profitability in the second half of the year.

Finally, and important also, our employee engagement and the response to our new strategy has been very positive, which is critical as we begin to execute with greater focus and with discipline. Now some examples of our strategy in action. You see it here on the slide. At Capital Markets Day, we shared that we would be making targeted investments in our Professional business, and stadium lighting is one of the focus areas within our Professional Europe business.

And on this slide and actually throughout the presentation, you see the newly renovated Stade Armand-Cesari in Furiani in France. It is a great showcase of our integrated offering for stadium. So dynamic lighting, smart controls, architectural highlights and 3D printed fittings. And this connected lighting project was delivered in collaboration with our certified system integrator partner, important that we are well connected in the ecosystem to help this project and bring it to life.

Moving on to Consumer. In line with our entertainment focus in the Consumer business, we introduced a new way to enjoy match day at home, and that was particularly relevant, of course, during the World Cup. Our Sports Live feature for Hue and Philips Smart Lighting triggers real-time lighting effects that react instantly to big events in the game, such as goals or yellow cards, creating an interactive full room experience. And it's a great example of how we can use lighting to make homes more entertaining and fun. And we have a great community of highly engaged Hue customers, and this was reflected by the very high level of adoption during the World Cup tournament.

Moving on to sustainability. This is actually the first progress report on our Brighter Lives, Better World 2030 program, which we launched at the start of this year. And the program focuses on improving lives, saving energy and preserving resources. And on the slide, you can see the four KPIs and the progress against each of them towards the 2030 targets. And basically, we're off to a good start, on track and just ahead of our H1 targets, which puts us on the right path towards these longer-term ambitions.

Let me now hand over to Zeljko, who will discuss the financial performance. Zeljko?

Thank you, As, and good morning, everyone. So yes, I will now walk you through our second quarter financial performance. So total sales were EUR 1.332 billion this quarter with a comparable sales decline of 3.6% as market conditions remain mixed. Pricing pressure continued to ease across the business, supporting the top line. We saw sequential improvement across both our Build and Harvest portfolios. Adjusted EBITA was at EUR 81 million, resulting in an adjusted EBITA margin of 6.1%. The margin decline was mainly driven by a lower gross margin in Consumer, where higher input costs outpaced price realization during the quarter, combined with lower fixed cost absorption on weaker volumes.

Overall, our indirect cost resizing program remains on track, which will provide increasing support to our operating margin improvement through the second half. And finally, free cash flow was broadly stable at EUR 35 million compared with EUR 36 million last year, supported by continued working capital discipline.

Moving now to the Professional business. So the Professional business continued to demonstrate resilient profitability in a challenging market environment. Comparable sales declined by 2.5%, mainly reflecting continued softness in stock and flow across most geographies. At the same time, project activity remained resilient in the U.S. and rest of the world, where we continue to outperform the market, partly offsetting weaker demand in Europe.

Despite the lower volumes, the gross margin remained stable at around 40%, supported by disciplined pricing and ongoing cost management. As a result, the adjusted EBITA margin was 7% with the modest decline primarily reflecting lower operating leverage on reduced volumes. Looking ahead, our cost reduction program remains on track and the turnaround actions we have initiated in Genlyte are progressing well and are expected to provide increasing support to profitability.

Moving on to Consumer on Slide 11. The business remained broadly resilient from a top line perspective this quarter with a comparable sales down 0.2%. Connected continued to see strong consumer sell-out, confirming healthy underlying demand for our products. However, lower retailer sell-in driven by ongoing inventory normalization continued to weigh on our reported sales. Outside of Connected, we saw strong growth in our luminaires business and another very good quarter in India. These positive developments were partly offset by weaker performance in China and lower sales at Klite, which was impacted by component shortages, delaying the supply delivery of its order backlog.

So let me now explain the development in profitability. The adjusted EBITA margin declined to 3%, primarily for three reasons. First, the lower Connected sell-in resulted in lower fixed cost under absorption and creating operating deleverage. Second, we experienced higher bill of material and other input costs during the quarter. We implemented targeted price increases, which started to gain traction, but there is naturally a timing lag before these fully offset the higher cost. And finally, the Klite performance area facing stronger headwinds on its profitability, both in fixed cost absorption and in higher input costs. Looking ahead, we are implementing several actions across our different performance areas to sequentially improve the profitability of our Consumer business, including additional price increases and further cost reduction measures.

Turning to OEM business on Slide 12. So OEM continued to operate in a very challenging market environment, particularly in Europe and in the U.S. Comparable sales declined by 12%, reflecting continued market softness across the business. At the same time, we continue to see encouraging dynamic on pricing with competitive pressure easing further compared with previous quarters. Adjusted EBITA margin was 4.6% despite continued headwinds in volume and also input costs. The profitability continued to improve sequentially quarter-over-quarter as the execution of the turnaround is on track, supported by the structural actions taken to significantly lower the fixed cost base.

And finally, the Conventional business. Comparable sales declined by 9% as the general lighting continued its structural volume decline in line with the market. This was partly offset by positive pricing and also the continued growth in the specialty lighting. Adjusted EBITA margin improved to 18.1% with the underlying profitability restored in line with our plans. This was supported by the normalization of manufacturing operations, pricing and cost discipline with additional nonrecurring positive effects. Looking ahead, we remain focused on maintaining a strong level of profitability while continuing to carefully manage the structural decline of the business.

Turning to profitability on Slide 14, so the adjusted EBITA bridge. So the adjusted EBITA margin declined by 170 basis points to 6.1%. Lower volume had a negative impact of 90 basis points, reflecting reduced fixed cost absorption. On the positive side, price and mix combined contributed positively, reflecting the traction of our price increases, improved mix and easing pricing pressure across the business. At the same time, cost of goods sold became a higher -- a larger headwind in this quarter, mainly reflecting the faster pace of input cost inflation, particularly in Consumer, where there is usually a time lag before price increases fully offset these costs.

In total, price/mix and COGS had a negative contribution of 90 basis points, broadly in line with the quarter 1, but with very different dynamics on both drivers. Indirect cost reduction provided a positive contribution of 40 basis points, reflecting the continued benefits from our resizing action and ongoing cost discipline. Currency had a 50 basis point negative impact on the adjusted EBITA margin in the quarter. This was primarily driven by non-hedged currencies, including the U.S. dollar, which was addressed and offset through pricing actions as for other cost inflation elements. That said, we have clear plans and operational efficiency initiative in place across all our businesses and performance areas, and this gives us confidence in delivering a stronger profitability performance in the second half of the year.

Finally, let me conclude with our working capital performance, Slide 15. So compared with last year, working capital improved by EUR 107 million, primarily driven by lower inventories and trade receivables. As a percentage of sales, this translates into an improvement by 120 basis points to 6.3%, reflecting our continued focus on disciplined working capital management.

With that, let me hand back to As to conclude today's presentation.

Thank you, Zeljko. And indeed, to conclude, while market conditions remain mixed, pluses and minuses, we feel genuinely positive about our strategy and the start of the execution of that strategy. We are very clear about where the opportunities and the challenges are, and we know what to do. Target price increases are gaining traction. Our cost initiatives remain on track. The turnaround actions are in place in our underperforming areas and underway. So as all these measures take effect, we expect to deliver an improved profitability in the second half of the year, as also mentioned by Zeljko. And accordingly, we confirm our full year guidance of an adjusted EBITA margin of 7.5% to 8.5% and a free cash flow generation of 6.5% to 7.5% of sales.

Now this, I think, concludes our prepared remarks. And operator, we are now ready to begin the Q&A session, please.

[Operator Instructions] The first question comes from Daniela Costa from Goldman Sachs.

I will ask the one question and a follow-up. First, I guess, can you talk a little bit what you think is driving the retailers to destock connected products if the actual sell-out has been strong? And I guess you've been talking about it being improving for some months. So why would -- why are they destocking in this type of environment?

Yes. Thanks, Daniela, for the question. Indeed, on the back of the Q1 earnings, I did mention that I expected that convergence to happen in Q2. It was slower than we expected. So we do see the convergence, however. Stock levels are now based on our data in the range of 8 to 10 weeks depending on the retailer. So that is just, I would say, just on or below normalized levels. So we see now that convergence is happening, and that's why we also feel more confident going into the third quarter.

What is exactly around -- behind what retailers -- how retailers optimize their inventory positions, they clearly came from a much higher coverage in terms of number of weeks. Now they are at these levels.

Got it. And then just can you talk us through -- I know IEEPA was very minimal this quarter. You've mentioned it again it was not substantial. You obviously had a sizable imbalance, I guess, with imports into the U.S. Do you expect it to become more substantial into the second half? How should we go about quantifying it? What do you include in guidance?

Daniela, so maybe what I can say on the IEEPA is maybe more under process because we are, of course, diligently -- as you know, there are different phases. So the Phase 1, which was completed end of April, Phase 2 end of June and then the Phase 3, expected end of July. So we are doing the filing. As you mentioned, this was indicated in our half year report, proceeds which were not material received and reflected in the first quarter. So look, for now, of course, the amount and the timing remain uncertain. So we will be communicating, of course, in due time on all the implications and how it will translate into the financial. For now, to your question on the guidance. So the guidance, as it's being confirmed, does not include any additional impact from that side that would eventually materialize in the second half of the year.

The next question comes from Max Yates from Morgan Stanley.

I just firstly wanted to ask around the cost savings program. Of the EUR 180 million, could you give us an idea of how much you recognized in the quarter? Are we at the kind of normalized quarterly run rate, which I guess would be low EUR 20s million if it was going to be saved over 2 years? And maybe any color on just how to think about that EUR 180 million phasing this year and next in terms of when the cost savings will be allocated from a P&L perspective rather than a run rate perspective?

Yes. Thank you for the question. So on the -- first on the progress. So we are totally on track and even ahead of the plan on the phasing we had defined for the realization of the gross savings. So the EUR 180 million, of course, is related to the gross savings linked to the resizing and restructuring action that we have taken. So since we had -- so it's a little bit more -- it's more concentrated on the second half of the year, right? And the reason for that is because we were, of course, conducting all the consultation process with the social partners, which have been satisfactory and completed across the board. So hence, the majority of the savings will be captured in the second half of the year, but we saw an acceleration in the second quarter.

So what we said is that the intent is to get the full benefit from a, let's say, run rate perspective, leading to 2027. So that's the goal and that's the aim to get the run rate exit of '26, capturing the full benefit of the EUR 180 million gross savings. Of course, the gross savings are partially netted by inflation -- cost inflation and targeted investment that we are applying specifically in our Build portfolios. So well on track.

What was it in the quarter?

I can't give you the exact amount in the quarter. I think we don't disclose the exact -- what I can say is that it's well on track with the plan that leads to the full capture by the end of the year. That's what I can say on Q2.

Okay. And maybe my follow-up would just be, if I look at the phasing of your EBIT, even to get to the low-end of guidance, you're going to have to do -- it will be about 40% in the first half, 60% in the second. You've done that kind of once in 5 years. The end market environment is difficult. Inflation is still happening. So maybe if you could point us towards kind of the two or three things that really give you confidence in getting that kind of outsized second half of the EBIT because obviously, it looks like maybe there should have been a guidance reset today. There have obviously been multiples. So I think people will be concerned that we have another guidance cut, which has obviously followed on from quite a few years of disappointment. So maybe kind of the two or three things that give you confidence in getting that kind of second half recovery in EBIT, please?

Yes. Thank you for the question and totally fair question, of course, looking at where we are in the first half. So look, for the second half of the year, I think three main drivers and three dynamics. Number one, improved top line, both in nominal terms because we do have -- of course, and that's the normal seasonality, a stronger second half of the year compared to the first half in nominal, and both in nominal and in comparable sales growth terms. So there, we do see as was mentioned earlier by As on the dynamic of -- in our Build and Harvest portfolio, a sequential improvement on the top line. So that's one.

Second, gross margin resilience, of course, as you mentioned, but we've had those situations in the past, increased price -- increased inflation on the input cost. So there, we do have also actions. So this is all about managing price/mix and cost of goods sold in combination to manage the gross margin resilience, which has been the case for the first half of the year in most businesses, except Consumer in Q2, as we indicated. So there, we do have a clear plan for the gross margin resilience.

Third, the increased contribution from our cost resizing program. So this is back to your previous question, where the contribution and the benefits of the cost savings will be increased in the third part of the year. Now I would say, in addition, what is very important is across the board, this improvement that is expected is also linked to the strategic execution in action that As referred to. We have a very, very clear plan across all the performance areas and with all the different playbooks that do apply. If you, for example, look at the -- we have a clear turnaround playbook applicable for the OEM business. The OEM business profitability has been sequentially improving quarter-over-quarter. We expect that to continue in the second half of the year and the structural profitability improvement.

We have performance areas where maintain high profitability applies. So that's the example of Conventional where we have restored the profitability and expect to maintain that in the second half of the year. It's also the case for Consumer lamps, for example. And we do have also a few performance areas where the operating leverage applies, and that's the case of Consumer connected, Professional projects and India. So we have a very clear plan for each of the performance area, which are really supporting the development and the improvement, which is behind the confirmation of the guidance for the second half of the year.

The next question comes from Martin Wilkie from Citi.

It's Martin from Citi. The first question is just to come back to Consumer. And obviously, I can hear what you're saying in terms of sell-in and sell-out. But when we look at the sort of headline numbers, revenue was probably better than people were expecting, but the margin weaker. Is there a mix effect inside that as well in terms of the non-connected business just having a sort of structurally lower margin than Connected? Just explain why optically, the margin decrease is probably more than you'd expect given the relatively muted decline you had on comparable sales growth.

Yes. No, look, I think there is an element of mix. But I would say the two biggest driver, I mean, if you really look at the -- and this is basically 80% of the erosion is first on the -- our, let's say, manufacturing, right, the lamps manufacturing business, Klite which is also structurally on a much lower level of gross margin. I think there, we've been facing a combination of a very, very -- tough combination of headwinds because you had, on one hand, shortage on components which did not able to -- unable to deliver on the backlog. So that was a volume impact.

And then in that kind of manufacturing business, the undercoverage impact was very heavy. We've seen also on the cost inflation side. This is where the components cost inflation has been particularly heavy and faster and the time line of addressing that through price is obviously more difficult. So that was the second. So in combination, that had a big impact. Although the size of that business for the total consumer is not that big, but the impact on the margin for that business has been quite significant.

On the other hand, for the Connected part. I think there is intrinsically that sell-in, sell-out gap, which immediately translated on the under coverage. So I think these two components, I think they represent most of the impact. And then we have smaller impacts on other elements and some negative one-offs. But broadly speaking, this is more about the intrinsic impact on those two businesses.

I would say the Connected part is transitory, clearly. On the Klite part, the upstream manufacturing there, it's more structural because there you really have that headwind on volumes. You have that, of course, headwind on cost inflation that need to be addressed. But we are very, very clear. So we understand exactly what the issues are on those two areas, and we have a very clear plan for the second half of the year. So the mix element to your question, to be fair, has been limited to explain the erosion of the Consumer EBITA margin in Q2.

Great. That's really helpful. And just as a follow-on and also relates to destocking. In Professional, you obviously talked about stock and flow again. But just to be clear, is that also sell-in versus sell-out? Is the stock and flow levels of inventory at your distributors normalized? So this is just really about the end market? Or how should we think about what's driving that weakness there?

Well, on the -- that again is a mix. So the destocking effect is not so evident as it is on the consumer side, Martin. What we see on the stock and flow is that you still have some price erosion, although we see that easing. And then we have just seen also a lower demand in those channels, right? So that's both the price effect as well as the volume effect that we have not -- we've seen the sales in stock and flow coming down. And on the other side, on projects, of course, that has been much more resilient.

The next question comes from Akash Gupta from JPMorgan.

Some of my question has already been asked, but maybe just a follow-up on Consumer margins development in second half. So if we listen to what you have said so far, there are quite a number of moving parts here. And it looks like some of the headwinds that we have seen in first half will turn into tailwinds particularly from the channel inventory point of view. But overall, when we add everything together, what's your conviction on second half margin versus last year? I mean we saw significant erosion in H1. Could we see more of a flattish margin for Consumer overall in second half? Or that would be too ambitious? That's the first one.

Look, I think for -- as you said, there are different moving parts within the Consumer business. You have different performance areas. You have the upstream manufacturing part. So there it's fair to say that, as I said, you have a structural pressure, both coming from volume, and that's obviously directly impacting the margin and cost inflation. And we do have, of course, levers to offset but there you're in an upstream manufacturing place. So this is a bit more challenging. So this, I would say, would be probably the most challenging part.

And then on the other hand, we see Connected, it's all about leverage, right? So it plays both ways. So we had an operating deleverage, unfavorable impact in the first half of the year, driven by this destocking. But then when it goes back into the normalization and the convergence of sell-in, sell-out, then you are back into the operating leverage. And this is a business that has a much higher seasonality in the second half of the year.

So I think there, we are clearly seeing that it should go back to the levels expected. Price power to offset cost inflation is, of course, of a different nature. We do have also on the lamps business, right, which is more a Harvest portfolio within our Consumer business, where there we see strong profitability. So very resilient profitability, which we do expect to maintain in the second half of the year. And then we also have the luminaires business there we are applying -- it's one of our Build portfolio, which has been growing strongly. So there, we are really -- and this is a pure operating leverage performance area again.

So I think very different dynamics. But to your question, I think we expect clearly that we are normalizing, let's say, the level of margin in the second half of the year for the Consumer business after what was clearly a challenging first half with different moving pieces.

Yes. If I would have to simplify it, I mean, positive India, positive luminaires and lamp sales. Then challenging in Q1 was Klite and Connected on the operating leverage, and then we had China online, which was a challenge. And going forward, this with price management, we see margins improving. We will also see inflationary boom, build material. So that needs to be offset. But typically, we see much higher sales on Connected in the second half, and that would give us that operating leverage and that margin uplift.

And my follow-up question is on exchange rate in the bridge. So when we look at in your P&L, FX headwind on revenues have gone down quite materially in Q2 versus Q1, but headwind on margins was same 50 basis points in the bridge. Can you tell us about what shall we think -- how shall we think about this exchange rate impact in second half? Is there any chance that it might turn positive in H2?

Yes. Thank you for the question. As you know, it's always a bit difficult to project, but at least what we can say because, of course, we have very clear hedging mechanisms in place, right? So for the hedge currency, I think put simply, they've worked very well in the first half of the year, and they are going to continue to play their part. Now when you look at the non-hedged currency, I think you do have movements. And there, if you have between the sales currency and the COGS currency, right, we have quite a large part of our supply, which is China based. So when you look at the dynamics of the RMB versus the dynamic of the U.S. dollar, for example, you have to -- so this is basically another element of cost inflation that we are fully incorporating as such.

So it's really looked at, if you like, the FX movement as one other flavor of cost inflation dynamic or cost deflation depending on how currencies go, which are embedded in the way we manage the margin. So hard to tell you specifically on that element of the bridge, how it will look like. But at least what I can say is that for the hedge part, under control and fully managed. And for the non-hedged currencies, it's back to gross margin management discipline.

The next question comes from Rajesh Patki from Barclays.

I've got a question on the cost base. I mean I think you said the cost savings will have a lot more meaningful impact in the second half. Do you expect the exit run rate for indirect cost as a percentage of sales to reach a 30% target by the end of this year?

So as I said, the cost -- so yes, full capture of the gross savings expected as entry into 2027. Now to your question, what we have indicated is -- and this is what we mentioned during Capital Markets Day, our goal is to bring the overall indirect cost ratio to 30% or below by 2029. So I think looking, of course, at the dynamic of the top line. So we will and we are sequentially improving, but this is not going to lead for 2027 yet to reach the 30% that we have indicated as the objective for -- by 2029.

Got it. And my follow-up is a slightly different cost bucket. The shipping costs, which were at 6.2% of sales last year. Can you comment on where you stand for the first half? And what have you assumed to get to the margin guidance?

Yes. So on the shipping cost, that's where we've seen, of course, much earlier in the year, right, the effect of cost inflation because that was also, to a great extent, linked to the conflict in the Middle East. So we've seen that transportation cost increasing. So as a percentage of sales, we see an increase in the first half, but which is, of course, mitigated and addressed through pricing actions.

So I think when we look at the transportation rate, look, it's -- of course, it's a very volatile market. Any given week, you can see different movements, but we do not expect -- I think the pressure is already high in the first half. So I think the ramp-up would be more limited, but we have factored that in, of course, in our guidance, but starting from a relatively high level already in the current cost for the first half of the year.

The following question comes from Chase Coughlan from Van Lanschot Kempen.

Two questions from my end. Firstly, you mentioned that the Conventional volume decline from the general market was, of course, offset by a strong specialty performance and some pricing benefit. Could you remind me how much of that conventional business is specialty today, even approximately?

Chase, it's about 1/3, just below, 25% to 30%, yes.

Okay. Amazing. And then my follow-up would be just on the pricing impact for the year. You've, of course, mentioned you've already taken some pricing action and there should be more to come in the second half. Could you give an estimate on sort of how much, let's say, the pricing impact on a sales level should be for the full year '26?

Yes. So if we look at what happened in the quarter, so the price/mix was about neutral for all Signify. So we clearly see an improvement versus the pricing erosion that we saw in the last 2 calendar years, '24, '25. So where we push up prices in areas where we have higher differentiation and more concentration. And of course, we are careful doing that in areas where it's more fragmented and more commoditized. But if you would look at it by business, the price/mix that Professional was more or less flat year-on-year. And then Consumer, the pricing has been lagging versus cost increases in the first half, and that should catch up in the second half.

OEM continues to have pressure so a negative price/mix effect and conventional was a positive price/mix effect. So it's really a mixed bag in the portfolio. And it depends on the mix. It depends on where we have differentiation and concentration power. So it's really a bit hard to predict -- to average that out on the second half of the year. But it's been more or less neutral effect in the first half. And we -- yes, for now, that continues. We're taking decisive action where we can to, of course, offset inflationary effects.

The next question comes from Marc Hesselink from ING.

First question is actually on the price increases. And I think if I read it correct or I listen correctly, then a significant impact is on Klite where you have to increase the prices to protect the margin. But that's also probably an area where it's more difficult to raise prices without impacting volumes. So can you maybe talk about the trade-off there and what you then expect for volumes in this business for the second half?

Specifically for Klite, Marc?

Yes. Maybe in general, but I guess Klite is an area where, yes, you have a lot of -- where it's a difficult market at the moment and where I think it's quite difficult to raise prices without impacting the volumes.

Well, Klite, of course, is really our manufacturing of lamps position in China. That was facing quite a bit of headwinds in the first half because of the shortage of the components, which were very specific also to -- concentrated to Klite. And then we saw lower volumes and under coverage. So that has been the dynamic of Klite. That should improve in the second half. Lamp sales, however, were pretty resilient in the first half. And it's also a position where we have strong brand power. So we think that we have -- we can also take price actions as required on that part of the business.

Okay. Great. That's clear. And then second question is on the margin development, maybe a little bit per quarter, not asking like guidance per quarter. But I've seen over the last few years, typically, the third quarter was relatively strong already relative to the first half of the year and then obviously, the fourth quarter being the strongest. I mean how do you expect that cadence then this year because you still have quite a difficult comparable base in the third quarter. Maybe your thoughts there.

Yes. Look, as you said, of course, the blended answer will be a bit difficult because you have different dynamics at play across the different businesses. I think this year compared to previous year, I think the pacing of offsetting cost inflation through price, of course, will have an effect, right, because it will not be applied in the same way across all the performance areas or at the same pace across all the performance areas. So I think there may be a bit of a different pattern, let's say, Q3, Q4 compared to what we've seen in the previous year. But the dynamic back to what I was saying earlier of sequential improved top line, gross margin resilience improvements and increased contribution of our cost will continue to apply from Q2 to Q3 and then, of course, from Q3 to Q4.

So is it then fair to assume that this year will be even more fourth quarter geared than usual?

That's fair to assume that, yes, indeed.

Our final question comes from Adam Parr from Rothschild & Co.

Could you please help us a little bit more with the split of price/mix because I know you sort of conflate it? So how much was true price increases versus mix given, one, you mentioned targeted price increases, but as well, it sounds like there's some negative mix coming from the destocking in Connected. So I just wanted to ask, was overall pricing at the group level positive?

Well, we look at price/mix always. And there, I indicated it's been neutral across H1. We are putting up prices, right, where we see a higher cost input and higher input costs, and we are more careful in areas that are more commoditized. And then that mix plays out as neutral. That's where we are.

Okay. And is there time for a follow-up, if I may? I'll try it anyway. So I just wanted to ask on OEM. Is there anything else we should be aware of why it sort of redeteriorated in the quarter in terms of organic sales growth?

OEM, yes, it is a bit changing. It is a bit volatile quarter-to-quarter, I have to say. The second quarter, we saw a weaker demand and lower sales in Europe and the U.S. Asia Pac actually sales was quite good. Now the team is extremely agile, applying the playbook, as Zeljko indicated earlier, really taking out the cost and taking the pricing actions. And therefore, we see better results bottom line. But Q3, right, I mean, will have its own dynamics. So I don't necessarily see this as a trend that needs to continue like we saw in Q2.

We have time for one more question, which will be from Maarten Verbeek from The IDEA!

It's Maarten Verbeek from The IDEA!. What has not been presented in this current press release is the connected light points, which tends to give some indication about your performance in this area. So could you disclose that amount of connected light points?

No, thanks for the question. And indeed, we normally put that in. We left it out this time to focus on the strategy. But at the latest that I've seen, we are -- we stand at 175 million points. We still track it very well.

Okay. And secondly, your dividend will be based on your adjusted net income going forward. So actually what I also missed in this press release was an adjusted net income for Signify in the first half. Just to get a better feel what we could expect for dividend to be paid by Signify start of next year.

Yes. So I think you're right. So we mentioned it's on the continuing net income. So the way it has been applied in the past because the dividend policy as has been communicated is similar or is the same as what was applied previously for Signify, so 40% to 50% of the continuing net income. So I think the main element of adjustment would be relating to restructuring. So I think you would -- so it's a fair point that we perhaps could make that even more visible. But basically, if you look at what has been reported, the proxy would be your adjusted -- I mean, the net income restated of the impact of the restructuring. So but that's something which we can make a bit more visible in the disclosure for sure.

If that's visible, obviously, there will also be a tax impact, which is not that visible at least for me.

Point is taken. I think we can give that visibility and add that into the disclosures.

Just wrapping up to the end, yes.

No, I would just like to turn the call back over to Thelke Gerdes for any closing remarks.

Yes. Ladies and gentlemen, thank you very much for joining our earnings call today, and apologies for the technical disruption at the start of the call. So if you have any additional questions, please feel free to reach out to us. And thank you very much again, and enjoy the rest of your day.

Good morning, ladies and gentlemen. Welcome to Signify's 2026 Capital Markets Day. Welcome to everyone here in Eindhoven and to everyone joining us online. Before we get started, I have a couple of housekeeping items. So -- and then I will walk you through the agenda for the day. So our press release, which contains the key elements of the Capital Markets Day was published this morning at 7:00. And the presentation is now available online for download from our Investor Relations website. A replay of the webcast will be made available as soon as possible after the event. We have an exciting agenda for you today.

We will kick off with a presentation of our CEO, -- As Tempelman, who will walk you through the strategy and portfolio review. This will be followed by a presentation by Michael Kuhne, who will provide a deep dive on the consumer business. We will then have a break. And after the break, we will start with the professional block. As will return to present the professional business, then invite Kraig Kasler, the President of Cooper Lighting to the stage to present a deep dive on his business.

And then Sumit Joshi, the CEO of India, will provide a presentation or a deep dive on our Indian market. After that, Željko, our CFO, will come on stage to present -- yes, to show how all the numbers, how it all comes together. And that will be -- that's it then for the presentations. We will then move on to a Q&A session where all the presenters will be present. We expect that the Q&A will start maybe around noon. After the Q&A, you're all invited to a lunch, which will take place in our lighting application center behind you. And we have two very exciting immersive sessions planned this afternoon, which you're all invited to. So there's a tour of our lighting application center where we showcase our professional products and the Philips Hue Experience Center where we showcase our Hue products.

And you may see that on your badges, there are green dots on some of them. So if you have a green dot, then you're in one group and the other group will start with the other tour first. Both groups will do both tours. Finally, after the tours, we will have a networking reception. So enjoy the day. Very excited to have a Capital Markets Day and to present our strategy. And I'm very happy to now welcome As Tempelman to the stage.

Thank you, Thelke. Good morning, everyone.

Thanks for joining us here in Eindhoven on this very warm day, beautiful day for all of you online, thank you for dialing in. It has been 5.5 years since our last Capital Markets Day, and that's a long time. Maybe some would say too long. And it's great to be with you today here to engage about where Signify stands and what we are planning for the future. Now a lot has happened in the last 5 years. Technology has evolved in many sectors and lighting industry is no exception. What we've also seen over the last 5 years, you remember, 5 years back, we were at the tail end of the pandemic of COVID, where people put a lot of investment into lighting their homes. And that was actually the last year we saw our revenues going up.

Since markets have been very challenging, challenging for the lighting sector and challenging for Signify, too. We faced sustained revenue decline over the recent years and too often have we missed expectations.

And for me, the case for change for Signify is crystal clear. We need to stop that decline and do better. And that's why today, we set out our new strategy to become a more focused, better performing lighting company. And I'm super excited about the plans that we have put in place. I feel fully confident we can deliver these plans with lots of self-help. Now with that opening, -- let me share some of the key messages I have for you this morning. We expect the market to be flattish in the next 3 years with growth in connected and intelligent lighting systems. Signify has many strengths that has brought us where we are today and that will continue to serve us going forward.

One of these strengths is the resilience of our gross margin. That will remain unchanged. We have a strategy with two legs. The first leg of the strategy is portfolio focus. After a comprehensive portfolio review, we have defined our portfolio at a more granular level around build and harvest businesses. The second leg of the strategy is a performance step-up. For each performance area, we have defined specific strategies with three playbooks to increase profitability. We have already delayered our top team, and we are fully aligned at the top, not only about the strategy we want to pursue, but also how we are going to successfully execute that strategy.

We are planning to stop the decline in revenue, increase and grow profitability and deliver competitive shareholder returns. Now before I talk about our plans in a lot more detail, let me first share my view on the lighting market. And I mentioned that technology has evolved. In our definition of the lighting market, we estimate the lighting market to be around EUR 53 billion per annum. And with population growth and wealth growth per capita, we think the number of light points will continue to go up. Yet there is still a transition going on from conventional to LED lamps and from LED lamps to integrated luminaires. And with a longer product lifetime of LED, we still see some erosion.

So on the one hand, more light points, on the other hand, longer product lifetimes. And that results in a more or less flat growth for the next 3 years. And that technology, you see it here on the chart technology evolution started with conventional lighting, which is now still 12% of the installed base in the world, but it is only a fraction of the annual sales. You see it here, less than EUR 0.5 billion. That conventional market is declining with around 35% per annum, so it's rapidly diminishing. We also see the LED lamps declining. So let me talk a little bit more about LED lamps.

There is a false belief with many that the continuous decline in LED lamp will continue until we hit that horizontal axis and it will go to 0. We don't believe that will be the case. We think actually LED lamps demand will flatten out, will plateau at around 60% of current value, 70% of current volumes. And why is that? We think there will always be a demand for nonintegrated socket-based applications, and we will see a pickup of LED for LED lamps replacement. So this is an important insight. LED lamps have been consistently declining with the decline of conventional lamps and LED lamps replacing conventional lamps, yet we think that it will plateau out and we will have a stable market. And that is important because it will come back into our strategic choices later on. And this is where the excitement is, connected, intelligent connected lighting systems.

Connected lighting systems are much behind LED when it comes or ahead, whatever you -- the way you look at it on the S-curves, right, less mature and approaching inflection points. We expect volumes to continue going up, and we also expect some price erosion there. So about volume up 8%, price erosion around 4%. So on average revenue growth opportunity in the market around 4%.

This is a business, connected lighting, where you need good hardware, good software and access to market. So it's an important part that there's a large degree, this is also a software and intelligent business where operating leverage is really playing a role. So as you grow the business, you grow the profitability. Now what is underpinning our view on this growth of connected, the use cases are super strong. In professional, energy efficiency and operational efficiencies are key themes and they are themes to stay. And on the consumer side, we'll talk about it more later, there is an increasing demand for ambience and lighting experience in homes.

The installed base of connected lighting is still very low. In the professional market, it's as low as 10% to 15%, depending on your definition, so very low. And consumer even lower, only 3% of houses actually have connected lighting installed. And if you want to succeed in this connected lighting market, you need strong brands and reputation because security of data, system longevity do matter. This is not a simple purchase. And in Europe and the U.S., we increasingly see fencing with regulation and some trade barriers as well. Now beyond lighting. With the demand of lighting to be expected to be flat, we are actively exploring opportunities to make a bigger move into new value pools beyond lighting.

None of this is in the numbers yet. It's too immature to put any of that in our financial planning. But we are looking at it. And what are we looking at? We are looking at sizable large growing value pools where we have a right to play. And what does that mean and right to play is that we have a certain capability or we have a product linkage or we have a route to market that we can leverage or a customer relationship that we can utilize to get into these next door opportunities. Increasingly, data will play a key role. We already capture large amounts of data with our intelligent lighting systems, and we feed this data into adjacent systems. AI applications will unlock new use cases and make this space even more exciting.

To give you an example, we have a collaboration with an HVAC manufacturer, so heating and cooling, where our lighting system capture the data, and we use that data to operate and steer the temperature settings in each room or we capture data with our outdoor street lighting that we feed into intelligent traffic systems, not only to do the dimming, but to actually also have in the smart city solutions, optimize the use of energy and lighting elsewhere in the city.

So we get more and more use cases in different spaces. Again, this is something that we will continue to pursue. It's not in our numbers. Our primary focus is now on becoming a more focused, better performing lighting company. But I do want to be very transparent about it that in the long term, we should not be just a lighting company. We can become much more than that and also create a lot more value with the capabilities that we have. Now a bit about Signify, and it's important to demystify a bit what our portfolio looks like. You see here the breakdown by technologies. So conventional and LED lamps represent 16% of our sales. These are last year's number. That's a bit more than market. Market, that's around 9%. Connected and specialty lighting already make up 36% of our sales.

Geography-wise, we currently operate with full presence, direct presence in 55 countries and North America is our largest market. 22% of our business last year was business to consumer and 78% the remainder was more business-to-business of nature. I want to highlight here the small blue part of the donut chart on conventional, which is now 6% of our business. Of course, that's where the history of the company. This is what we grew big at is 2/3 of that is general lighting. So that's about EUR 200 million revenue or 4% of Signify and then 1/3 is specialty lighting, that is niche applications.

It's important to understand that the conventional lighting business, one is general lighting, where the conventional application are still used to light for lighting applications, and then there's the specialty lighting for purification or other niche applications. Our mission to unlock the extraordinary potential of light for brighter and a better world remains very relevant in the future. Yet going forward, we don't -- our ambition is to lead the industry not just by scale, but in performance, innovation and the value we deliver for shareholders. Now I've been now 9 months into this role, and I have not had a single moment where I regret my move. What a great company, what a great industry.

I had the time to -- had the opportunity to spend a lot of time with partners, with customers and a lot of colleagues working in all parts of the business, including the front line. And we conducted a comprehensive strategy review. And after 9 months, what is my diagnosis of Signify. Signify has lots of strength, and that also made us the company that we are today. The same strength will serve us well going forward. But that alone is not enough. We need to change and do some things differently. So let me talk with you on a few areas.

Despite the revenue decline, we have kept gross margin at a very resilient level, yet our performance across the portfolio is not consistent. There's an opportunity. We have technology and innovation power second to none. We have a very strong portfolio of patents. We really are very strong when it comes to R&D. Yet, we need to up the returns on our R&D investments, and we will. We have got great scale real sourcing power and real flexibility when it comes to the supply chain. I'm very impressed with how we have dealt with real shocks in the supply chain due to COVID or more recently due to tariffs. Yet if I look at the value chain, Signify is still too exposed to the manufacturing of commoditized products. And I'll come back to that.

To succeed in our business, you cannot do it alone. You need a very strong ecosystem of partners, and you need to be deeply connected with these ecosystems in many different markets. And we are, we have been for many, many decades. Yet, we need to invest more, and we will invest more in distributor partners and in certified system integrators and in specifiers going forward. And then part of who we are is our sustainability program, Brighter Lives, Better World. It is really differentiating us.

We are really deeply motivated to be a force for good for the world as well. Yet with our recent update of the program, we have fully aligned our sustainability goals with our business objectives. And that's important because I personally believe you can only make really meaningful impact if there's also an economic incentive to change. That's my diagnostic. Now one strength I mentioned, and you see it here illustrated by the chart, is this ability to keep margins at a resilient level. And you see here the green light that since COVID, we have seen revenue decline, but we've kept EBITDA margin at a very stable level. And what is behind that?

It's our real brand strength and therefore, the pricing power that comes with it, but it's also our sourcing power. Our ability to keep our bill of material low. And mind you, 40% of our R&D goes into value engineering. So we often think innovation is only about the next cool stuff. No, a lot is actually going into value engineering. And all that together gave us this possibility to keep margins at a strong level. And we feel confident that we can continue doing that because they're really underpinned by these factors. Now that brings me to our go-forward strategy. In 4 words, more focused, better performing Signify, more focused, better performing lighting company.

First leg of the portfolio, we have taken a comprehensive review of our portfolio. We have applied different lenses. We looked at the portfolio through geographies, segments, products, value chain, and we have really done that at a more granular level. Then we have defined the portfolio by those performance areas that we consider build, the build part of the portfolio and those that we consider for harvesting the harvest part of the portfolio. And we have made six explicit portfolio choices. When it comes to the performance step-up, we have three playbooks to increase profitability. And each performance area, we apply one of these three playbooks and each performance area has a very distinct own strategy, also basis their own market dynamics.

And there are a few common elements that we will pursue to raise the bar on operational excellence. Now I'm going to talk you through all this in the next few minutes. The granularity of the portfolio. What does it mean? And why do we do it? To give you a few examples, if you are in consumer and you manufacture LED lamps in China, you are in a very different business from selling Philips, -- you connected online through Amazon in the U.S. There are two different worlds. Equally, if you are in a made-to-stock business in Europe, you're in a very different world from doing a stadium specification project elsewhere in the world.

So you -- our Horti business on agriculture is a whole business on its own in its own niche. So you really need to go one level deeper than the business unit structure to have a meaningful conversation around portfolio and performance. So we have identified about 20-plus performance areas, each with their own market dynamics, each with their own strategy and their own P&L. We are not changing the company or reorganizing the company. It's just how we look at business. When I have a conversation with Michael about consumer, it's much more meaningful to talk about you connected separately from how we are doing on lamp sales on luminaire sales. It just makes the conversation much clearer, the performance review much sharper.

Yet, I don't want to build the impression that we are now a portfolio of 20 different businesses. We are far from it. The strength is in the collective portfolio. And each performance area benefits from being part of Signify, leveraging strong company reputation and brand investments. We have shared R&D platforms. We have our patents that apply across the board. Of course, we all benefit from our scale and our sourcing power. And in the go-to-market, there's a lot of overlap. There's a lot of overlap in our route to market. And of course, we all benefit from sharing the corporate infrastructure as well.

So one strength of the portfolio while recognizing that you need to really go one level deeper when it comes to portfolio choices and performance management. Now if we then show a bit more clarity about what does that look like if you split that portfolio into build and harvest businesses, then this is what it looks like. The build businesses are the businesses that we see as really important for our future. That's where we want to invest our time and our energy and our money. We want to build those businesses. And if we look back, some of these build businesses have been growing, but some has been declining as well. On average, last year, we saw about flat. So that's not where the decline comes from. And that is still 72% of today's business, right, EUR 4.2 billion of revenue.

We expect to deliver growth from our build businesses. This is a '29 horizon. So by '29, that should be around 2% growth, maybe more. Harvesting, those consist of businesses that play a key role, but are seen as less important for the long term. And we will make most of these businesses. And for some, we will consider portfolio options, and I'm going to talk about that. Looking back, no surprise, these are the businesses that are exposed to continued market decline, Lamps being one example. We think, though, that revenue decline will flatten out.

And I talked about that on the lamps side, that is a good example. So you see the numbers here. We expect the minus 11% that was really underpinning a lot of the decline we have seen to that easing out a bit, not just because of the queue, the volume in the market, also, we expect less price pressure in some parts of these portfolios. Obviously, we will build the -- as we build the build part of the portfolio, that will become a larger part of Signify and harvesting will become smaller. So as we see that shifting by '29, we think it will be 80-20 beyond that, right? That should continue, and we see the growth coming up.

Now I mentioned we make 6 explicit portfolio choices. 3 relates to our build portfolio and 3 relates to our harvest portfolio. First, we are excited, very excited about the growth strategy for consumer. On the professional side, we will make much more targeted investments. We will be much more selective in where we want to play and where we get the highest returns. We will streamline our footprint with direct presence. I mentioned we currently have direct presence in 55 countries. We'll bring that down to about 35 countries. So a more focused, simplified portfolio of countries. We reduced our manufacturing exposure for the more commoditized products and components. That's the first harvest choice.

We keep and extract the max volume from LED lamps over the life cycle. I'll talk to that as well. And we manage -- continue to manage the decline of conventional with all endgame options open. Now let me elaborate on what these choices actually mean. On the consumer side, consumer, we basically distinguish 2 build businesses, 2 harvest businesses. The build business are integrated luminaires and connected lighting and then the harvest businesses are lamps manufacturing and lamps sales. Now on the luminaires market, so this is where you don't have a lamp, but you have a luminaire with an integrated light source, our market share is ridiculously low. We don't really play there. And with a very targeted approach, we want to grow new revenues from this performance area.

It's a multibillion market, and Michael will talk more about that later. On the connected lighting, and you see it here on the chart, we expect to continue to see market growth, a CAGR of around 4% in value terms. We have a very strong position, and we are confident that we can continue to deliver growth from this performance area. And then India, that is an opportunity on its own. We are the largest, fastest-growing, most profitable lighting company in India. And we have very exciting plans to build that business, grow that business in lighting and beyond.

And that's also why it's on the agenda for a deep dive today, and Sumit will talk more about that later on. First choice, growing consumer. Second choice, I mentioned it, targeted investment in professionals. We don't want to put equal amount of energy into every part of the market. We are often up against competition that is very focused on one particular segment. So we will sharpen our focus on selected segments country combinations going forward. For example, in the U.S., we will focus on the health care segment or data centers. In Europe, we will focus on outdoor lighting, outdoor street lighting. And segment focus does matter. You see it here on the chart. From our granular analysis, we see that wherever we have more than 10% share in the segment, we realize much higher profitability.

So leadership in a segment does matter. Secondly, we want to -- I mentioned it, we want to invest in our distribution power and our distribution partners. We need to leverage our distribution partners more and better. And we will invest in enabling them with training and also with digital solutions. This is one of the areas where AI and digital can really help us, making it easier to do business with Signify. For those large distributors that have built their own platforms, we want to build EDI and API interfaces and be part of their platforms and feed into it.

For the smaller ones, we will have new tooling, AI-enabled agents as well for product recommendations and quotations and configurations. So really making the next step in terms of how we serve the channel. And we will continue to invest in connected lighting. I mentioned that before, and I will come back to it later as well. So very targeted investment in our biggest business professional. Then this is the chart that shows the country breakdown. Basically, we want to reduce direct presence from 55 to 35 countries. Now the focus will be simplify the company, focus on those markets that have the biggest sales and the biggest upside. And you see them here listed in green. Yet on the tail end, we sell already our products in over 100 countries. We have direct presence in 55. We want to reduce that to 35.

It doesn't mean our products and our brands will no longer be available in that -- in the countries that are marked white on the slide. In those markets, we will exclusively -- choose to exclusively play with channel partners, deeply engaged in those local markets. And I'm convinced actually that these partners with their proximity to their markets can actually grow the business better than we could with direct presence. So we don't call it an exit. We call it localizing the growth engine.

And it's actually a built business, building by focusing on the green, but also building partner capability in the white marked countries. This will reduce complexity. We will reduce our invested capital that can then be redeployed, of course, in the growth countries. This will be a multiyear transition. So this is not something we're going to do overnight. It's not a large reorg. It's not about all job cuts. Now we will engage country by country, find the best solution, find our way into it. By 3 years, we should be there, but it will be a journey that we take country by country, and we'll do that very carefully. Now that brings me to the harvest choices. I said we had 3 choices on the harvest portfolio. And the first is that we reduce our exposure to commoditized manufacturing. Now that is a bit of a negative. I could put it positive as well. We want to focus our manufacturing efforts on made-to-order, made to engineering. This is the specification projects business.

Where you do a project, you have a specific solution for customers in specific markets. That's what we want to be super strong at. Projects is what matters most. When it comes to the more commoditized or the larger batches of production standard products, right, so panels, lamps and so on, that's where we want to reduce our exposure.

And why is that? First of all, we see huge overcapacity in the market. China, and particularly, you see the lighting manufacturing lines being utilized 50%, 60% is what these companies tell me. Yet they build more capacity outside of China also in response to tariffs. You see new capacity being built in Thailand, Vietnam, Indonesia and so on. So I expect that, that surplus of capacity will continue to be there for quite some years. We see some consolidation, but we expect underutilization of lines. That also means that the returns on that part of the value chain are low, way below our expectations. So it's not an attractive part of the value chain for us to play in. And -- we are very strong when it comes to sourcing.

We got the scale, we got the supply chain experience. I think when it comes to sourcing, we really lead the markets. So with a market that is oversupplied, where we've got lots of choice of strategic supplier relationships, and we have some very strong ones, why not build that strategic supplier relationship, get less exposure ourselves. That's the strategy going forward. We focus our own efforts, all about focus on make-to-order, make to engineering for a specific project for specific customers.

Now -- so therefore, also all options are open for our OEM business units, where we, of course, manufacture components and also the commodity manufacturing, for example, lamps in China. And then you might say, well, what does it mean all options are open. We are carefully investigating how do we make -- get the most out of these businesses. Should we keep them and just optimize them, that fits in the harvest part of the portfolio. Should we partner or seek some consolidation in market? -- or should we divest, is there a better owner for it who is willing to give us fair value. We will explore all these options. And actually, we have started that already. Now that brings me to conventional.

I mentioned that conventional is really 2 different businesses: general lighting declining 35% per annum and then the specialty conventional lighting, which is more or less flat. As we continue, right, the general lighting will rapidly decline 35%. So we'll be left with just a niche application, specialty lighting business of around EUR 75 million to EUR 85 million and then a very small general lighting business. And we are very good at managing that decline of general lighting. I mean the team has done a fantastic job on that. And I think we are really best positioned to make the most of that product life cycle. Yet the business that will end up with is subscale.

And again, we will consider all options. Should we just keep it as a small part of the portfolio? Should we see consolidation in the industry, there are a few other players or should we try to divest it. We'll look at that. And then there is in the harvest business, a business that we don't consider all options because we have firmly chosen to keep it. And that's the extracting the max from Lamps sales, not Lamps manufacturing that goes into the top line of this slide. No, this is Lamps sales. This is where we have a very strong brand. You see everywhere in retail around the world in all those small retail shops with all those distributors, the Philips branded lamps are everywhere. It's a good business for us.

We will continue to harvest it and manage it for cash. Strong brands, strong distribution reach. So those are the 3 harvest choices. That brings me to the second leg of the strategy, which is the performance. Now again, I mentioned we have 3 playbooks. And each performance area that we have defined at granular level, the same definition as we use for the portfolio split, we also use for the performance part of the strategy. There are businesses that we like in terms of profitability, and we like the growth prospect as well.

Typically, the project businesses and the software businesses where as you grow in volume and scale and you use your scale and size, profitability also grows. Operating leverage, playbook one, maximize operating leverage, grow volume, grow profitability. Then there are a few performance areas that do not meet our expectations, and they need target interventions. Those are the turnaround playbook. We got to fix those businesses. They're currently dilutive and that needs to be turned around, playbook 2. And then 3, are the businesses that are exposed to no or low growth, but where we do like the profitability. They contribute positively to the portfolio of Signify. Those are the businesses like LED lamps and conventional lighting, right, where we need to maintain that profitability going forward.

So those are the 3 playbooks. Portfolio build and harvest, playbooks, maximize operating leverage, turn around or maintain profitability. Across the company, we have a few common themes fully owned by the leadership around how we want to raise the bar on operational excellence because performance is really at the heart of our strategy going forward. And these are the 4 performance areas. I will not talk you through all the bullets, but we will become less of a technology and product-led company will become more of a market customer-led company.

We will bring the voice of the customer in everything we do. And you need to be good at that if you want to succeed in projects, together with a complex and rich ecosystem of partners. We will start using -- well, enabling our partners, digital and AI are going to help us on that. And we will very targeted invest in our own capabilities, and we are doing that already, whether it's around e-commerce, marketing or sales. Then supply chain, supply chain is really critically important if you want to succeed in the specification project business as well. We need to make sure we end up with the right portfolio, and we are planning to reduce our SKUs, our stock keeping units quite significantly, 40%, 50%. We simplify our processes and we automate. We have now -- we are now starting to use AI tooling in our demand forecasting immediately, you see inventory and working capital free up.

Then there's costs. We will drive a very strong cost culture at a really granular level of performance area. We have too often, right, reacted on costs in a very agile and very efficient and effective manner yet too late. And it required a company-wide restructuring program to get our cost back to a competitive level, which we believe will be 30% of sales when you talk nonmanufacturing costs. And each time we went above that, we needed that big program to bring it down. Going forward, we want to manage cost as business as usual, each performance area not only has its own P&L, but also its own benchmark P&L and its benchmark cost base. And we want to make sure we manage it on a day-by-day basis and make sure we keep our costs at a competitive level in each single part of the business. If we do that well, we should not need any more large-scale company-wide restructuring. Also within the choices we make on the portfolio, we'll be much sharper on allocating of funds. And then on digital, I got the question this morning from one of the media, how excited are you about the opportunity of digital and AI for Signify?

I'm very excited about it. In 3 areas, it can make a real change. First of all, in our products, new use cases in intelligent lighting will be unlocked with AI applications. We can talk about that more later. Then serving our channel better. I mentioned that before. And thirdly, to drive our own productivity up. Demand forecasting and supply chain is a good example. For that, we are already building our data structures and intelligence foundation, and we also have full ownership, right, of managing the business towards a simplified and standardized landscape, owned not just by the tech guys, but by the entire leadership. Now that brings me to the team. We have already delayered the top team. So the Board of Management works directly with the key leaders.

And you see here on the slide, the key P&L leaders. So we have quite a flat organization. This strategy was not pieced together by just the Board of Management. This strategy was created by the entire team. It has full ownership and not only of the strategy, but also how we are going to execute it. We already have put in place a transformation office. We have 40 to 50 really game-changing initiatives to deliver the strategy that we now have execution in place, and we monitor progress. We really want to have that empowerment pushed down at those performance level, making sure they manage their P&L and their performance to very competitive levels.

You also see that we have a vacancy in the Board of Management, and that is a vacancy of Chief Growth Officer. That's a new role that we want to create. And that Chief Growth Officer, apart from being part of the co-leading the company will also be really tasked with building the next generation of platforms. We need to become much more of a software business in combination with the hardware business as we move into the intelligence spaces to make sure we get a higher return on our R&D and make the right choices there. We invest our R&D in what we can monetize and what customers want and are willing to pay for.

We'll still do some research as well, but we will focus more on what we can actually monetize. This is also, of course, the person who will lead the team looking at adjacent value spaces. This is really exploring, and I mentioned it earlier in the presentation, what are the next door opportunities where we can create good shareholder value. That's the team. And what is the team set out to deliver? And then I come to a few numbers. First and foremost, we want to stop the decline. This is a 2029 objective, and we want to return to stable, albeit low growth of the top line. This is reflective of a market, right, that has been shrinking. So we need to outperform. Going forward, we think it will be around 0, and we are planning to outperform. And of course, it is a function of our portfolio, which is built and harvesting. Now I also want to highlight that in these numbers, we assume that all the harvesting businesses stay with us.

So all the options are open in terms of seeking partnership consolidation and divestments are not yet accounted for in these numbers. But that's our kind of stop the decline is our key objective, and I am confident that we can bring the company back to stable revenues. Is it ambitious enough, right? I don't like to present all sorts of leadership fanaticism and come up with all sorts of hockey stick charts. I think we can deliver this. This is credible. Then we want to increase profitability. We are confident we can deliver around 10% adjusted EBITDA through improvement across all those businesses with our 3 playbooks as well as the portfolio choices we make, sustaining gross margin and then achieving that right level of costs.

And then finally, we want to deliver 7% to 8% free cash flow, 7% to 8% of revenue. All this with the shareholder in mind. Competitive shareholder creation is what we are fully committed to. With this strategy, we want to set up the company for future success. Stabilize the revenue, improved profitability, clear portfolio choices, performance step-up, 3 playbooks. We have a balanced capital allocation. Željko will talk to you about it in a lot more detail. Strong balance sheet is our #1 priority. Then we are committed to pay attractive and competitive dividends, and we'll be very selective on M&A, not only selective in terms of what fits strategically, but also strict criteria before we make an investment in terms of the returns we expect on such an acquisition.

With that, I'm going to hand it over to our CEO of the Consumer business, Michael Kuhne. Michael?

[Presentation]

My name is Michael Kuhne. I am the CEO of the Consumer division, and I'm going to take you on a journey into the world called consumer. So being a little bit less than 2 years in the role, I also want to share my personal journey. The things I learned coming new to this industry, the things I changed and the things, of course, what we're going to do. So first thing I learned coming into this industry that if you look at the consumer business, it's not really just one business. It's actually 3 performance areas that lamps, luminaires and of course, the connected business. And all 3 are slightly different. They have slightly different dynamics, and they need a different strategy to get the max out of them, but they have one thing in common. They all 3 have a very sound and good foundation and a strong position in the market. And that makes that I am super excited as leading this business because I believe we have a real exciting growth opportunity here within consumer.

Now let's get into it. I already said there are 3 performance areas. You see them here on the slide, LED lamps, luminaires and connected business. When we start with LED lamps, this is a big market, very profitable for us, where we have strong market share positions. And actually, the strong market share positions are growing every year. So we're increasing our market share. But we're operating here in a declining operation, right? The volumes are going down. And also, we already talked about it, you see the slides. We believe that the volumes in this market will stabilize roughly 2035 at 70% of the current volumes, but it will stabilize. Going to the luminaires part, on contrary to the LED lamps, this is a moderately growing business. And it's very diversified. So it's very fragmented. There's no big A player, no dominant A brand in that market.

But the interesting part of this market is it's the size. We're talking about a EUR 15 billion plus market worldwide. And we're just relatively modest in this market yet. If I look at my current portfolio, I'm very much in the functional area, which is downlight spots, and it's just a small area compared to the total opportunity we have. And I believe that with our distribution power and our brand strength, there's something to grab for us here.

Connected, last but not least, we entered that market in 2012 with the Philips Hue brand. The growth here is the penetration in the households. We believe that if you do the math and read the reports that this market still is in the early phases and it could still grow on average globally, I think, 5x the current value. So that is, for me, a great opportunity where we have a strong position already. All right. But before we really go into what we're going to do, I just want to take you on a journey just to zoom out a little bit because when it comes to the consumer demand model, it's slightly different than the professional one. First of all, the big difference is, of course, the one obvious one, we're serving consumers.

And consumers move houses every 8 years. That means that 12% of our potential customers are on the move and open for business, an opportunity for us to serve. That's a big difference every year. But there's more than that. There's also changing in behavior of the consumers. And what we see is that they're basically moving from -- particularly after COVID, from basic illumination, functional lights into more ambient, convenience, even connected or entertainment. And what you see more and more is that consumers are making what I always call as a marketeer, their houses, they're turning that into their homes.

That means they're investing time and money and effort in getting that warm, cozy atmosphere that placid environment where you really feel that because it's your home, right? And you see that in the lighting part of accent lighting, dimmers, I mean, different shades of white, more warmer, cozy and potentially even people jump into connected lighting with all those benefits, but I'll come back to that later. And the interesting part here is that's really for me a big insight is that these ambient lights, convenience lights, getting creating that are not necessarily fighting with the existing light sockets. These are lights which are additional. These are lights you want, not necessarily need, right?

And it's true, it's not for everybody. I'm going to be very honest. There is a group who says functional lighting is good enough for me. But there is a large group, we call them accomplished cosmopolitans, who is really into this. It's amazing to see. And that group is growing, and that's what you see in the market. Third thing when it comes to consumer demand model is our marketing power. And -- as already talked about it. The Philips brand within consumer is just second to none. Me being a marketeer having brand awareness levels of 80-plus percent is just a dream to work on.

Basically, it says that wherever you are in the world, and you mentioned the Philips brand, people will know us. And that's a big thing. And then you have, of course, our marketing activities. We constantly engage, and I'll come back to that more on a daily basis via CRM, via social media with consumers. And by doing that, we basically inspire them and give -- show them the possibilities what their home could be like. And by doing that, we create additional demand. So we have much more levers to pull when it comes to the demand model. Now to summarize, Signify is the global leader in consumer lighting worldwide. And being an integral part of Signify gives us so much benefits. To give you some examples, right? Connected capabilities, we obviously have Philips Hue. My Prof colleagues also have a connected business. So we contribute significantly to these capabilities within Signify, but we also benefit from it.

When it comes to innovation, many insight and propositions from the Prof part, we can take consumerize them, make it accessible in the cheaper technology and bring it to consumer. There's a great example there at the corner. It's called Philips Skylight. If you haven't seen it yet, it's basically what we took, the insight and proposition of Nature Connect for those of you who know it, it's basically mimics the sky and the sun in a meeting room.

We consumerized it, and we just launched it this week actually. It's there for you to see. But also when it comes to sourcing power, obviously, by combining the volumes of the Prof and the consumer business, we get better prices. And last but not least, when it comes to real distribution power, we have strong synergies there, particularly in the emerging markets where you look at the stock and flow business of Prof in emerging markets, that is very much synergetic what we have in our, let's say, traditional trade retail. So strong leading market positions, available in more than 150 countries. I already talked about our strong brand portfolios, distribution power, basically, we are everywhere, being it in grocery, ERT, e-commerce channels, do-it-yourselves.

And I think most importantly, we know what we're doing, and we have been able to turn this business after months of decline, and we put it back to growth in 2025. All right. That's what I learned, right? So coming from a different industry background, I'm coming from the consumer electronics industry, more than 20 years' experience. So the 3 areas I really wanted to change quick were capabilities, structure and people. Let me tell you a little bit what we did there.

When it comes to capabilities, the first thing I really wanted to do is put the consumer in the center of everything. And I literally mean everything. That means the packaging, claims. Claims need to be in normal language. If I can't explain to my mother what this is about, we're doing something wrong. We should not talk about so many luxes or Watts or E27 fittings, et cetera, right? Consumer doesn't tick like that. When it comes to marketing, and social step-up, here, we made big changes. We hired external marketing and social media teams who really know what they're doing. And to give you an example, when I came, we had one person doing social media, but we had per month, I think, 10,000 views. Now we don't have 10,000 views per month. We have 2 million to 3 million views per week.

And that's really world-class leading. So 2 million to 3 million engagements per week with consumers, inspiring them what they can do with their homes. Big step up there. And AI, I mean, -- as already talked about it. We put AI in the heart of everything. I mean supply chain is already moving it. We're buying media with AI, obviously generating visuals with it. So yes, we're really exploring what more and more coding in our connected business speeds up with AI, and we believe there can be much more. Now let's move to the structure, and that's very simple.

If you look at the structure, wherever the consumer goes, we go. Very simple. So if a consumer goes to Amazon, we go to Amazon. If consumer goes to TikTok, and believe me, a lot of consumers are going to TikTok at this moment, we go to TikTok. If consumers go to do-it-yourself, we go do-it-yourself, et cetera, et cetera. So it's very simple. Wherever they go, we go. And as a result, we also needed to change the structure because going digital, going social shopping, et cetera, needs a different skill, needs a different dedicated team. So we set up a new e-commerce organization. We did that last year, and you see immediate results. Give you some numbers. Black Friday, big thing, big thing for consumer Black Friday. Last year, the e-commerce team grew in the U.S., 36% versus last year.

Europe, even better, 76% growth last year in Black Friday, immediately impacted the bottom line, just doing the things right. And of course, we had a different marketing setup. I already talked about that. People, yes, we brought in professionals there where we needed it to really get that impact fast, and I showed the results on it. But also internal talent, we identified quickly and put them on the right places so they could thrive and learn and be at their best. So we did quite some things there. And when it comes to my own management team, let me just say one thing, I think 60%, roughly 60% is new, but I think we're ready now for the big jump. Okay.

So we talked about what I learned. We talked about what I changed. Now let's talk about what we're going to do, right? Three business performance areas. Let's start with the LED lamps. Remember, large business, profitable, strong market positions, but declining market. So having seen these dynamics, the best strategy here is a harvest strategy, which means that we're going to defend our value share, our strong value share and maximize profit by actively managing price and cost, of course, leveraging also the strong brand and distribution power we have. When it comes to luminaires, different story, right? This market is growing, EUR 15 billion, relatively small portfolio, but we believe there's more to gain for us here with our brand.

So what we're going to do is twofold. First of all, we're going to keep the functional light what we have now and grow further, the functional light, which mainly spots down lights. But on top of that, we really believe and I really believe it gets me really excited because we're going to build a new portfolio, which is design-led and family-based. Now that sounds very complex, but it's actually very simple because how do consumers shop.

Consumers do not walk into the shop and say, I want an E27 400 lumens wall lamp. No, they walk into the shop, say, that's a beautiful design. What is that? So we need to beef up our design capabilities. We want to make products beautiful, and we have one of the best design agencies in-house. Making beautiful things captures the attention of consumers. And once we've got that attention, then my family approach comes in, Oh, you like this design. I have this not only in the wall, I have it also on the floor, the table and ceiling and then you got them because you want consistency, right, making their houses, their homes. We're going to just help them. So that's what I mean with design-led family-based portfolio.

And last but not least, of course, the connected. As talked about it, growing market. We have a very strong position here. And we just want to outgrow this market. We want to gain market share. How? Twofold. First of all, grow faster. That means getting more households into your ecosystem. So increase the penetration. And once you're in those households, I want to sell more products. So we're talking about depth and width. Because in the end, and that's a big thing I think we should take out of this presentation, Philips Hue and The Connected is about an ecosystem. We're not just selling a connected lamp.

I'll come back to that more and explain why. Now here you have it, our strategy going forward. As also told it already, we have a strong portfolio focus. We made clear choices what we want to do, LED lamps, harvest and reduce our exposure to manufacturing. Luminaires built, connected build, right? But we need to also step up when it comes to our performance. And I'm really not happy yet when it comes to the complexity of my business. I mean, I have too many SKUs. So -- and that creates hidden costs. We need to get 40%, 50% out. And we already started that and making good progress. And then it becomes -- when it comes for lamps, we're going to defend our value share and basically use the playbook -- As also talked about, in this case, to maintain profitability. And for the luminaires and connected, we have the other playbook, which is maximize operating leverage. And with this, I'm really excited to get this whole business growing.

All right. That was too quick. Let me go back. For those of you who do not know the Hue business that well, we made a little clip, and and then we could talk a little about Hue. Here we go.

[Presentation]

Does anybody have Hue? Very good, very good. It's amazing, right? And there are -- as I said, it's not for everybody, but the group really into this is really rapidly growing. And the skepticism say, yes, okay, what's the big deal, Michael? It's a connected bulb that can change color and you can turn it on and off with an app, right? But it's so much more than that. It's not just a connected color built. We're talking about indoor luminaires. We're talking about outdoor luminaires. We're talking about track systems, remote controls, dimmers, security cameras, sensors, TV entertainment stuff, light strips, other modules. It's a whole suite of products. It's an ecosystem. But it's not the width of the portfolio, which makes it really special. It's the way all those modules work with each other and give the seamlessly personalized experience. Philips -- basically follows you. It adapts to you. It adapts to your routines, to your preferences. And once you've set it up like you want it, you'll be so happy to do it, and you'll be so enthusiastic because, yes, you can interact with an app.

But once it's done, to give you an example, 15% of our consumers, once it's set up perfectly, they don't touch the app anymore. And this is a big difference because I talked about increased lifetime value because we're an ecosystem. Because of the seamlessness and the width of the portfolio, people start buying more products. And that's the big difference with my Chinese competitors who sell a connected proposition like a connected lamp, et cetera. They typically sell 1 or 2 products to a household. On average, worldwide, Philips Hue users have more than 10 appliances of Hue. And that number is increasing every year. I'll give you a good example in the slide below this. And that's the big difference. We have an ecosystem. We're not just selling a connected lamp. All right. Now how are we going to further grow to this? I'm going to speed up a little bit. Now we're going to, first of all, continue to deliver first to the world innovations.

What do I mean with here? We just launched recently Motion Aware, which is super cool. It basically turns every Hue luminaire or light bulb into a motion sensor. Now you could say, okay, what is that? I'll give you an example. My kids, 17, 14, I get crazy when they just leave on the lamps in the hallway or in their room. I threatened with everything, it doesn't work.

Now if the motion aware, I can adjust the ecosystem in such a way that when somebody enters the hallway, the lamp goes on, when there's nobody in the hallway, lamps goes out. Same for their bedroom, right? It adjusts to you. You could also use it for security purposes. You can just imagine the endless possibilities it has. You can do everything what it wants because every lamp is a motion sensor. Now what we also had is spatial aware. This is a bit more difficult to explain. But once you're into the ecosystem, you have your scene set, the system builds a 3D map of the room. It knows which lamp is where -- and based on that, it can optimize the ambience atmosphere. Now for some of you here, I would really advise you to go to the breakout rooms at the end of the day where you can see the demo of spatial Air because it's really next level when it comes to experience.

Now we talked about design and luminaires. Of course, that goes also here. We have that design family and product-led design. We're going to do that also in Hue. I talked about the lifetime. We're going to increase that further by having more beautiful products, but also have additional services, which people are willing to pay for. And we're already doing that for security, we have subscriptions, but it could also be in-app upgrades, et cetera. And last but not least, what we're going to do with Philips Hue is we're going to really create a wow entertainment experience.

Now what is that? More and more consumers are consuming content. Content being music, Spotify or what else or video, HBO, Netflix, et cetera. They're all into content. Light can play a real immersing role in getting that level of experience from here to there. Let me show you a movie what I mean.

[Presentation]

So what it does? It syncs light with the content, being music or video, and it gives a real cool experience, something consumers are super enthusiastic about. And that segment within the connected business is really booming and more and more people are getting into that. It's something you just talk about the show to your friends, right? Yes, good. So we talked about that. Let me -- and this is my second last slide. Let me give you a real example because what gets me really excited is I want to make sure you understand the business drivers behind Philips Hue because it's actually very simple. The business is 3 pillars: household penetration, -- within the households, you have the number of devices and then you have that times the average price of the device.

So what we have here, I just brought a real-life example of the Netherlands. Now I have to say you, Netherlands is, of course, our home country. So we have a stronger market position here, and we're a bit further on the journey here, which is also great because it shows you, if you do everything right, the true potential of this system. Now if you look at the Netherlands, 8 million households roughly, we have a penetration of 8%. So 8% of the households, we have a Philips Hue bridge. We believe that the market in the Netherlands, where globally, we believe can be 5x still what it is right now over time, penetration is a little bit higher. So we believe that it can be roughly 3x. So we believe that 8% could grow to potentially 25% over time. If you look at the household devices of you, I just put the numbers here, right? It started in '22 with 11 devices. And every year, it goes up and up and up.

And that's very high now. And at this moment, we're on average, globally, we're at 10.5. The Netherlands has 17 devices per household, who has Hue. And then you talk about the price per device.

And what you see here, be careful, this is what we call net-net sales price. So this is prices which we sell to the retailer after rebates and discounts. This is the money we get on the back on average. So after all the negotiations. So this is the drivers. And you're all smart cookies, of course. I can see you already start calculating. So if you would increase the penetration in the Netherlands just with 1%, we go from 8% to 9% and you keep all that the same, 17 devices, EUR 30 per device with my marketing power, my brand power, that will be for the Netherlands only EUR 40 million sales.

And this is just the Netherlands, relatively small country, right? And there's so much more growth potential. So that gets me really excited to get there. But I have to -- before we get overly excited, this is hard work. So it's not easy to get just from 8% to 9%. But I do believe that with the transition we've made the last 2 years being in marketing, e-commerce, et cetera, we've never been in a better position ever to capture that future growth. So let me close off. We talked about my personal journey. what I learned, what we changed. We talked about what we're going to do. We have clear strategies in 3 business areas. We know what to do. We have proven that we can bring the business back to growth.

And I hope I could convince you about the exciting growth opportunity in consumer. Thank you all. And I believe we now have a break until 10:30, so we can all grab a coffee. Thank you so much.

[Break]

Welcome back, everyone. Let's now talk about our professional business, which is 65% of Signify as it is today and a very important core part of who we are. Now -- our professional business across the world have their own characteristics and really their own regional dynamics. But what goes for all regions is that you really need to distinguish the stock and flow business, which is the more trade commoditized part of the business versus projects, which are much more customer-led, made-to-order specification business, often involving connected lighting propositions. Signify has a very strong position in both of these segments, and that was a position that was built over many decades.

Now across all the regions, there are a few common elements in our professional strategy going forward. First of all, we are going to focus -- have a much more disciplined focus on the segments where we have leading positions. So don't play everywhere, play where we can truly win and differentiate and choose your segments on a country level and a regional level carefully. Secondly, we are going to fully leverage our partners and re-invest in our distribution. That's not just distributors, wholesalers, that's also agents in the U.S. that's specifiers, that's architects and so on. And then what is also true for all parts of the Prof business across the world, we will continue to invest in our leading position in connected lighting. That is our largest growth opportunity. Those are the 3 key messages.

Stock and flow is different from projects. We have strength in both segments. And going forward, we want to focus where we have leading positions. We want to win with partners, and we want to invest in connected lighting. That's Prof strategy on the page. Now to again, create a bit more clarity around our portfolio mix. You see it here, about 70% of last year's sales was actually around projects versus 30% in the trade-oriented stock and flow. And when it comes to geography split, North America is about half the Prof business, Europe represents 30% and Rest of World, the remainder.

And I talked about the importance of this rich and somehow complex ecosystem that is really important in the projects business, but also in stock and flow. We have multiple routes to market with many actors involved. And there's complex decision-making. And demand creation through specification is really key. It's a real key to success. You've got to be specified on a project. Equally important is the mind share of installers. You want to make sure you have good mind share and preference, yes, choice of preference with installers. And we know how this ecosystem works. We have been doing this for many, many years. We have got the deep reach in the market. We've got the relationship. We are deeply involved. And going forward, like I said, we want to leverage our partners even more and make them successful.

If our partners win with their sellout and they are successful in the market, we will benefit from that as well. So first key message. The ecosystem, our deep connectivity in that ecosystem is a real differentiator. And it's actually very hard for newcomers to play into this space -- in this project space. Then this is what I call our pride slide.

There, we do amazing projects around so many segments in so many countries. And you see some of them here on the slide. We have been selected as the Preferred Provider for Floodlights by FIFA. And of course, that gives us a real strong position to be the recommended provider for the football industry. Now you see also here on the hotel side, the famous hotel, the iconic Marina Bay Sands in Singapore, where we have deployed our Interact platform together with our Dynalite platform. It is a huge hotel facility and entertainment facility, more than 100,000 light points, HVAC systems and Drapery around 2,500 rooms.

So we go much further than just lighting. We actually control Drapery and HVAC systems in those hotel rooms. And then hospitals, I mentioned that health is a key -- health care is a key sector also for us in the U.S. and Cooper Lighting has worked here with the Massachusetts General Hospital to create a safe place that support high-risk patients recovery and their well-being. So I could talk about this slide for a long time, I won't. But what all these projects have in common is that they make use of our leading connected lighting platforms. And our position today is strong in this business, and it's a key area for growth going forward.

Like I mentioned earlier this morning, the installed base in professional when it comes to connected and intelligent lighting systems is still low. It's 10% to 15%. There's way to go, way to go. We have a leading position. It's already 40% of our Prof sales is actually connected. This is last year's number. And over -- on previous years, last few years, we have seen double-digit growth in connected lighting. We have a very strong patent portfolio, not just on hardware but also on software. Increasingly, you see that our patent portfolio is shifting towards more software. And above all, we are trusted for quality, for reliability, for the data security that we provide, but also for the longevity of the relationships that we build. So going forward, connected lighting will continue to be important.

We keep growing it across many applications. Operating leverage is really key. As we grow the business, we also improve its profitability. We invest in new use cases, leveraging AI functionality, and we will also address this ease of installation. And that's important because particularly in Europe, but you see it in other markets as well, the capacity of technicians is a real crunch point. So there is just not enough technician capacity available. So therefore, time of technicians are scarce.

And if we make the commissioning of these systems easier and the installation of the hardware easier, that is a real competitive advantage. Now a bit around -- a quick round around the 3 different regions. In Europe, we have a very long history, of course, from the Philips days. We have a very strong brand. We've been here for decades. We have the #1 position. We are very strong in outdoor. We got 3 manufacturing sites in Poland, in Hungary and in Spain. And Europe is a more fragmented market with quite a few different supplier. We also see a growing importance of e-commerce. And that is particularly also in the environment of distributors. You see distributors do not just sell over the counter, but they also start to put more on their website. So this is an opportunity to enable them and help them doing that in a successful manner.

Going forward, we will have that segment prioritization. In Europe, very strong focus on the outdoor side, and we will make better use and invest in our partners, our specifiers. We want to grow the number of relationships we have with specifiers. We will focus our innovation on connected lighting, no surprise and the specification projects business. And when it comes to performance for the European business, all 3 playbooks do apply. Outdoor, strong position.

We want to scale that business, keep growing it, keep leveraging our strong starting position and really have operating leverage to grow profitability. The stock and flow, that's where it's more competitive, more commoditization. There, we need to maintain profitability. It's part of the business that serves us well, but there's also where you really need to have a very strong marketing mix, and that's what we are pursuing. And then, of course, on the indoor side, although we are probably outperforming when it comes to revenue, the profitability of our indoor business needs improvement. And that is really a turnaround playbook, and we have actions lined up to deliver on that.

That's Europe. Then the rest of the world. Now the rest of the world is a big place because we define the world as North America, Europe and Rest of World. And by definition, therefore, it is a very fragmented landscape with many countries. What is consistent though is that in many of those markets, we are facing local competition. We're the only true global player. And that gives us a real advantage. We have a high -- a portfolio of very high-growth countries, delivering profitable, accretive growth. The largest markets are Middle East, Turkey, Africa, China, India, Southeast Asia, and we also have a strong position in the Pacific. Made-to-order manufacturing, we do in 10 locations. We have manufacturing sites. You see it here on the slide. Our major plants are in China, Egypt, Saudi, Brazil and also in Indonesia.

It is also a more fragmented space and a very much a partner-led business. 75% of our sales through these emerging markets go through distributor channels. Now going forward, we -- again, like Europe, actually, we prioritize and focus on the specification business. What you see is once we get specified on the project, we are in a very strong position. We win 1 out of 2. So getting specified on a project is really important. Hence, our investment that we make also in specification. We focus on segments where we are strong for the rest of world that is quite broad with road and street lighting, sport lighting, facade lighting, bridges, landmarks, very important to us as well as hospitality. I just shared the example of Marina Bay Sands in Singapore.

And then I talked about localizing the growth engine, focusing our footprint. Of course, that also is relevant for the Rest of World region, where we will fully leverage partners in a number of markets to -- in terms of our go-to-market strategy. That brings me to the North America, where we have 2 businesses. We have Genlyte Solutions and we have Cooper Lighting Solutions.

Now together, the 2 businesses have about 20% market share. Cooper very strong #2 and then have Genlyte #4 position in markets. They have separate front ends, meaning we've got 2 phases to the market, right? We got two product offerings, two agent networks. Both businesses have their own agent networks. And they compete in a way on stock, on connected lighting, indoor and outdoor. Yet together, the complementary of these agent networks because the agents are either working primarily related to Cooper or Genlyte, there's no overlap there. Collective, it gives us really good coverage and customer relevance. So it works well for us. And what we basically want to do is keep those 2 front ends going while we leverage the full scale of Signify and on the back end, shared functions, procurement and so on.

So that is really the strategy going forward. Now Kraig will talk a lot more about Cooper. Let me say a few things about Genlyte. Genlyte was acquired by Philips in 2008, and it was very strong on project specification business. This was in the days where conventional was still very big. And as the technology transformation happened from conventional to LED lighting, we saw that Genlyte has been broadened out, right? They got involved in stock and flow. They grew their indoor business. They got a bit diffused on the outdoor as well.

So what we now want to do is we want to bring Genlyte back to its core strength, specification, big focus on outdoor, where we have a really competitive product portfolio and a very strong brand portfolio as well. Simplify the business, focus it again. Not only outdoor, we will still also focus on indoor projects because you've got to stay relevant for your agents as well. So that's really the strategy going forward, a focused Genlyte, and that is also with a turnaround playbook. We want to make sure that we bring the profitability up while we continue to serve the markets well. Now the Cooper Lighting Solutions is a real asset, very successful acquisition of Signify done back in 2020. We see it as an important part of Signify as it is today, but also a key platform for growth going forward. And therefore, I'm very happy to welcome Kraig Kasler, the CEO of Cooper to talk to you a lot more about what is and what we set out to do.

[Presentation]

So welcome, and thank you again for being here today in person and online. As -- As mentioned, I'm Kraig Kasler. I have the privilege of leading our North American business called Cooper Lighting Solutions. I've been with the business for 18 years and of course, part of Signify since 2020, the acquisition for the last 6 years. And as you'll see today, we occupy the #2 market share position in the U.S. And since joining the company here, we've extended and increased market share over the last 6 years, and we have a solid plan in place to go ahead and continue doing that over the next several years. And that includes gaining share both on our #1 competitor and then further distancing ourselves from the significantly smaller players that are behind us in the marketplace. And so I'll walk you through how we're going to go ahead and do that. So first, let me start with the market. The North American market is large.

It's the most concentrated in the world and very profitable. And so as I mentioned, we hold a very strong #2 position, and our plan is to amplify this #2 position out there in the marketplace by adding to a very broad and rich and deep product offering and leveraging that through our very, very strong agent network that allows us to reach the most customers out there in the North American market. And we have a clear winning strategy. We're going to grow our connected lighting business have been and will continue to grow it as well as our specification lighting portfolio. And I'll walk you through how we're going to leverage some of the investments Signify is making in digital and artificial intelligence to help us on the front and the back end of our business.

So let's start with the market. As I mentioned, a large market, $10.5 billion. It has contracted since COVID. The market is still down since before COVID. But the good news, as we look forward, we see the market growing in the low single-digits space. And so that gives us even more opportunity here to amplify our growth and outperform the market. As we mentioned, it is consolidated. You can see here the top 4 players in the market represent more than 60% of the market. There's a high degree of specification in this market. Quality matters, particularly on the project side of the business.

And individual codes and regulations in North America will favor large luminaire manufacturers, and I'll walk you through why that is coming up in a little bit here. And we have a very unique go-to-market with our lighting agents that are out there, serves a very fragmented customer base. You see the customers listed here on the page. But I thought maybe I'd pause here for a second and just talk a little bit about agents that may not be as familiar with them or manufacturers' reps. At their core, they're really an extension of our sales team, right? They don't take title to the product. You saw As's chart on how decisions get made here. We don't ship them product and they reship it to customers. Instead, they're out doing presales service support, post-sales service support and of course, selling on our behalf.

And as we ship products, they get commissions. They are very, very highly motivated as 100% commissioned agents. This is the only way they make money is if they sell to be partnered with the very best manufacturers in the marketplace because that gives them the best chance in that local marketplace to win projects. But in any given project, there's not enough even from the largest lighting companies like Cooper, not enough product breadth to serve every single product need that would happen on a given project. And so agents also represent many other manufacturers, but Cooper Lighting is by far the largest share of wallet for them, representing 50% to 60% of the total sales of that agent. The last thing, I guess, I would mention about agents that's important is they've been a very effective barrier to importers.

On the stock and flow side of the business, that's a bit harder because those folks can get directly to some contractors and distributors and sell product. Project side, that's very, very difficult to do. And so if you don't have relationships with strong agents that know the local decision-makers in the market, it's very, very hard to go ahead and compete there. And so that's another piece of value and why we like our agents so much. So now let me to introduce Cooper Lighting.

It's a very, very strong platform for us for profitable growth. We are fully invested here, have an end-to-end position in the marketplace. We have 6 plants, 3 in the U.S., 3 in Mexico that primarily serve the project part of our business. And of course, we, as -- As mentioned, leverage the Signify scale on procurement, innovation, digital and some of the back-office functions that we talked about. But our leading agent network, 125 agents strong, each with their own teams being successful in the local market. We have 10 different channels to market.

And these relationships are deeply important to us and our agents, many of them spanning on average over 20 years and many of them much longer than that. So as you can see in the middle, a little bit of a cut of our business, different views as a percent of sales. U.S. is the predominant part of our sales, of course. Project is larger than stock. Indoor is larger than outdoor. However, outdoor, we also have the #2 market share position there. And most importantly, connected, which is a growing part of our business, now up to roughly 1/3 of our total sales. And as you can see on the right side of the chart here, we have a strong trajectory in the business. This has been a successful acquisition since being acquired in 2020 despite the economic environment, which was through COVID at us and then a lot of supply chain and global transportation disruptions, a couple of global conflicts around the way.

And then just for fun in the U.S., we threw in tariffs and inflation to deal with as well. But despite all that, we outgrew the market, and we increased our profitability. So I think it shows our resilience. And along the way, we made a couple of small but very strategic acquisitions, one in specification lighting and one in connected lighting to further enhance our offering and help us continue to be positioned well as we go forward.

So as -- As mentioned, 2 parts of the strategy here, right? One on portfolio, one on performance. And what you're going to hear today, and I'll walk you through in the next 15 minutes or so, one slide on each of these 5 bubbles at the bottom. We have a 5-pronged strategy to winning in North America and really continue to extend our winning performance here. On the top and the bottom of the page, customer experience and operational excellence. We're going to leverage some of the investments Signify is making here to improve, and we'll, of course, customize that for North America, but that will improve the performance for all of our customers and all of our shareholders.

But we're going to take a deeper dive here on the stock and flow part of our business, where, again, the Signify scale, particularly in procurement helps us. but we're really going to go deeper on the project side of our business in specification lighting and connected lighting because in any given project, one or the other or both combined are really the key to the project coming to Cooper Lighting as opposed to one of our competitors. And so the other point that I would make in this because we talked about agents on the front of this, this is also how our agents are organized and go to market. They generally have a stock and flow team focused on contractors and distributors.

The specification lighting team that are calling on lighting designers and architects and then a connected lighting team that's focused on engineers and contractors in terms of deploying the connected lighting solutions. And so that's why we draw this distinction on the project side of the business. So as we get into each one of these 5, it's always a good idea to start with the customer, right? And so this is our customer experience and really how customers deal with and agents, by the way, deal with Cooper Lighting every single day along the buying journey. So you see the 5 steps across the top. Prior to becoming part of Signify, the front end of our business was old and out of date. It was a set of systems that we had built in the 1990s.

We were not easy to do business with. People loved our products, loved our people, loved our agents, but we were difficult to do business with. And so it was one of the first investments we made since we came to Signify last 4 years, we spent time reengineering and rebuilding tools in each one of these. So if you can imagine yourself, let's say, in a hospital and you're in the discover phase, really learning about the project, -- we now have a tool called Light Architect. You can download a Google Maps view of the hospital. You can imagine the parking lot, you drag in the Cooper Lighting parking lot fixture.

This tool will lay out the parking lot, how many poles, how many light fixtures, what lumen levels, what mounting heights. And then you can sort of zoom in and see the total lighting design of that is also see the product in application to make sure it's from an aesthetic standpoint, what you're hoping to achieve. Then if you came inside, you could download the building layouts of this and lay out all your indoor fixtures and lighting controls to manage the indoor connected lighting system. Once you have that done, you pass it off to another tool that would allow you to configure the product. So you get specific model numbers so that we know exactly what we need to build for the customer. Then you need to price and sort of quote the customer so a configure price quote set of tools.

And now it's come time to order, and we built a whole customer portal that allows the customer then, of course, to go in and place the order online in conjunction with our agents and then track whether it's coming from our distribution or our manufacturing plants all the way to the customer site. And then lastly, support the customer using AI tools that we built on the back end from a post-sale service and support side. But that's really just the beginning of the story, sort of this big leap forward we've made since part of joining Signify.

The good news now is we can also add an Agentic AI layer to this to make each one of these steps more efficient along the way, but more importantly, in an automated fashion, sort of move customers across this journey in an automated way to deliver faster and better service at a lower cost. So next, the stock and flow part of the business, as As mentioned, by far, the most competitive segment that we're in. We have leading brands here, thousands of SKUs, 9 distribution centers. This is really playbook 3, as As talked about. It isn't the fastest-growing part of our business, but it is a very profitable part of our business. And we've done this successfully for decades, the stock and flow part of our business, including through COVID. And we've dealt with importers all along the way pre-LED and post LED.

But what we're doing here differently going forward, instead of thinking of Cooper Lighting as one broad P&L or business, we're breaking apart the stock and flow and project part of the business so we can make conscious choices of how to serve our customers and then also how to manage our P&L for shareholders, right? So if you think of the P&L, the top part of the P&L here, super important to be making the right price volume and margin trade-offs to sort of maximize our position in the marketplace and our profitability.

And on the bottom part of the P&L, having a very lean SG&A model to serve what is a very transactional segment. And so what matters to customers here, speed, service and cost. And if you think of ease of doing business in this segment, orders in this segment are thousands of dollars or tens of thousands of dollars, sometimes hundreds of thousands of dollars. So it's many transactions that add up to a big dollar number. And so if you are not easy to do business with sort of a frictionless model here, people will go and choose others. Next on commercial excellence. Well, why is this important? We spend an inordinate amount of time in this segment. There are labor shortages from a contractor standpoint all over the U.S. and to have our products be the absolute quickest to install is a huge part of the value we deliver into this marketplace, making sure from a sales and agent standpoint, they understand our products and can articulate that to distributors and contractors is super important.

And then lastly, needless to say, a relentless focus on cost. Bill of material here is super important, all the tariff and moving things all over the world to make sure we're in the best cost manufacturing place that we can be at all times, super important.

This is where Signify's scale helps us immensely here with access to these various contract manufacturers around the world and make sure we're getting the best value there. And then also, as I mentioned, making sure we have a very lean SG&A. So now let's leave the stock and flow world. We'll go into the project world. And this story here is really about rebuilding our portfolio. So let me take you back in time, sort of pre-LED, think 2008, 2010. We have thousands of different product families, hundreds of thousands of different SKUs we ship every year. And what you need to figure out, right, is which stuff you're going to convert to LED first, second, third, fourth, and so forth. And so obviously, a big driver of that is where is the best customer and value proposition.

But closely behind this, of course, you're going to try to change the highest volume, lowest mix stuff first to LED. Well, that is not the specification lighting space. It's actually the exact opposite. This is a lower volume, higher mix part of the portfolio. And so smaller niche competitors, maybe a $10 million, $20 million, $30 million company more focused on converting that. The larger players in the lighting industry took a step backwards during the LED transition.

The good news here is now this -- with some of the investments sort of winding down on the front end that we've been making in connected lighting, we're going to be attacking this space and rebuilding our leadership portfolio here, both organically and targeted from an inorganic standpoint from an M&A. And this is clearly playbook #1. This is about driving operating leverage in a margin-accretive segment that's highly differentiated. And as we do this, we're going to focus, as -- As mentioned, on the highest growth segments in the marketplace, right, both from a product development standpoint and a commercialization standpoint, things like health care, education, data centers, just to just to name a few.

And a good example of this is this company you see here that we acquired in the middle about 7 months ago, Nemalux, a very small harsh and hazardous business, primarily operating in Canada, serving markets like oil and gas and mining and wastewater treatment and complex manufacturing environments. These are places where a spark from a lighting fixtures causes big unsafe events in the marketplace. And so customers very much value safety, brand and reputation, right? So this is very, very important. And what we brought to this acquisition was access to the small companies' access to North America, particularly the U.S. and Mexico here because they have great products.

They have great know-how. They just didn't have a way to commercialize this. And by the way, we didn't have access to this portfolio. So 7 months in, super excited about the early results and where this is taking us. Now from a connected, and I would argue this is the most exciting part of the story. First of all, it's the fastest-growing part of the lighting market. Second, we're outgrowing that. And third, we're very well positioned to really add some sales and marketing gas on top of a winning portfolio. So really the opposite story of what we just heard on specification, where we want to rebuild the portfolio because we have great sales and marketing. This is the exact opposite of that story. And what I'd want to impress on everybody here today is sort of on the left-hand side of this chart.

This is a hard journey. This is a 10- to 15-year journey to build this connected lighting system designed for North America and North American codes. And if you think about the range of applications that you have to build for here, it's very significant. Everything, let's say, from a small doctor's office up to a very complicated hospital or maybe a hospital complex that spans many states throughout the U.S. both wired applications, wireless applications, many different customer requirements in different customer segments. This is hard. It takes a lot of money. It takes a lot of time.

And quite frankly, there's only a few in the industry that have the ability to sustain the level of investment it takes to build these systems and commercialize them. The great news for Cooper Lighting is this work is largely done. Of course, the journey never ends, but the big build is behind us. We now have a leadership connected lighting system here. And I mentioned I'd come back to this, individual codes and standards in the U.S. They basically require individual level luminaire control. And so why is that important? Why does that favor large manufacturers? The answer to that is really twofold. First of all, the most efficient way to deploy a sensor network in a building is to integrate them into fixtures.

And so if you have a broader lighting fixture portfolio, you have more ways to deploy the sensor network. The second part of the story is the most cost-effective way to deploy the sensor technology is to do this in a luminaire in a factory. Those that just are sending control devices to a job and luminaire devices in a job and relying on a labor-constrained contractor to put these pieces together, wire them, make them operational and connect them to a software system is absolutely the wrong way to deploy the technology.

And so we're well positioned here. The solution stack is built, the codes and standards are helping us. The market is growing. What do we need to do? This, again, here is playbook #1 about driving operating leverage. What we need to do is pour some sales and marketing on this story. This is around upskilling our agents to make sure they understand the value proposition and how to deploy this in the marketplace, attacking again, going where the growth is in terms of the market segments that where we can win and increasing our sales and marketing spend. So we become the basis of specification in the marketplace where historically, sometimes we had been chasing our competitors.

And so we have sort of crossed that bridge. And I talked about this being the most exciting part of the story and why is that? Well, as you think about how projects develop, most often, the lighting control system is specified before a project than the lighting is. And so if you have a winning lighting control system and connected lighting system and you are the basis of specification, you're not only going to win the connected lighting, but all the other lighting that comes with it. And so it sort of has a multiplying effect of being great here also makes you great on the specification lighting side.

And the last of the 5 things that I was going to talk about, but certainly not the least is operational excellence. We've done a lot here, but there is a lot more that we can do yet going forward. So pre-LED, we had 14 factories in Cooper Lighting. Coming into the company, we had 7. Today, we have 6 despite all the supply chain chaos that's happened there. And when we came into the company, if you overlaid Cooper Lighting's distribution center network with what Signify had in North America, they were virtually identical. Same number of DCs, in most cases, the same cities that we were in. And so we've rationalized that down from 15 to 9. And you can see about 2/3 of the sales here that we have today come from our manufacturing sites that are working, as -- As mentioned, primarily on our projects business, while we're leveraging our global purchasing power to be successful on the stock and flow side.

So again, here, I'd say our strategy is clear. There's more we can do. We have more North America infrastructure opportunities, both on the plant and DC side. Driving fixed and variable cost productivity, a very, very important continuous improvement every day on that. And of course, then to reduce inventory and lead times. And this is really the oxygen of our business. And it's why it's so important to have an end-to-end business structure so that we can really drive this every day. This fuels all the other investments we want to make in the product and the commercial side of the business to fund the investments that we want to make there.

And on the supply chain side, we talked about leveraging the AI investments that the company is making here. This is both how we digitally connect to our customers to have a better view of the demand coming in. And on the backside, passing that exact same forecasting information to our suppliers and being able to track those materials into our factory as well as digitizing and automating some of the processes that sit between the front end and back end of that supply chain. So we think there's a lot of gas left in the tank here in terms of what we can do from an operational excellence standpoint. So as I close here today, I hope you can see we have a very clear strategy and execution road map to amplify our #2 position. I've been in this business for 18 years in this industry for longer than that. I believe with every fiber of my being, this is the right strategy for us and for the company here.

And I'm quite confident that we're going to create operating leverage, driving sort of an accretive specification lighting portfolio out into the marketplace, a growing and accretive connected lighting business while enabling many of the processes that we've talked about here today with the digital investments and AI investments we have to drive success both for our customers as well as our shareholders. And so with that, I'm going to go ahead and pass it over to Sumit, who's got an equally exciting story to tell you about India. So thank you for your time.

[Presentation]

Good morning. My name is Sumit Joshi. I've been working with this company for the last 14 years. And it's a great privilege to lead India market for last 8 years. I said I've been with this company 15 years back is when I joined in 2011, when I joined in marketing team in India. At that point in time, we launched the first LED bulb in India. The price of that bulb was EUR 25. 15 years down the line, the price of that bulb, it's EUR 0.50. In that EUR 0.50, we make money. We have selling expenses, cost. In this 15 years, inflation has gone up, the price has come down dramatically.

EUR 0.50 can only go down so much from here on. I firmly believe that we are now in the stage where I think the second stage for the lighting industry is going to start. I firmly believe that. The company which I joined in 2011 versus what it is today is completely different. It's very different. There was no connected. Now it's much more connected. Brands which were #2, #3 are not there. Conventional, it's gone. But one thing has not changed in these 15 years. And my friends, that thing is we are still the second biggest light source for the world. Who's the first one? The sun. That thing has not changed. Now what that tells us is that we have what it takes to go through this transformation. And today, I'm going to use this opportunity to give you a flavor of India, not in the weather you have seen in the last 2, 3 days, the temperature of India, but really bring to you what India can play a role, a significant role in Signify's next journey.

So quickly, I'm going to start and at the onset, I just want to simple take away for you. And that takeaway is India is already a very high-performing business for Signify. We spoke about built and harvest. Clearly, India is a part of built. And when I say India being part of built, both our consumer business as well as professional business is part of built. It makes us more money. We are growing.

We are better than the competition there. And the playbook, which we are going to apply, of course, for India is to leverage this growth. More we grow, it is very, very accretive to Signify. So the calling card, the marching order for India very clearly is how fast and how much can we grow. And today, I'm quickly going to take you through why do we believe that the market is there, which is structural growth and how do we participate in that. I'll share some bit on our position in Indian market. How is Signify positioned? We are, of course, the lighting leader, best in terms of the industry financials and all of that, but I will share that much more in detail. And I'll share with you what is going to be our simple 5-point strategy to take it to the next level.

So let's begin. Let's look at the market. It's a compelling growth market. On the left-hand side, you see that as far as the economic -- macroeconomic backdrop is concerned, it's the highest growing market. But what is interesting to note is that if the world is going to grow, a large portion of that growth is contributed by India, 17%. What it also means is that for us as a company, if we have to grow, the percentage contribution from India in terms of growth also has to be of a certain level. And this growth is coming both from consumption. Consumers are spending a lot more money. They are upgrading, but there is also a big amount of capital expenditure, which is happening all across in India.

In the middle, you see that LED market per se is very mature. It's already 100% penetrated, almost Conventional is gone because government played a big role in terms of the transformation from Conventional to LED. So what is going to drive the market in coming time? It's not going to be from Conventional to LED. I think that is done and dusted. It's going to be from new points. And I can tell you the speed at which the new points in lighting are coming up is huge. There are more homes.

India used to be a country which there used to be a lot of joint families. Now there are many more nuclear families. Now what does that mean? That means that there are more homes which are coming up. There are more rooms, there are more industries, there are more airports, there are more railway stations, there are more everything, hotels and restaurants. Now all of that is basically about new points. But if one has to win in the new point, the ecosystem one needs to play is very different than a replacement cycle, where the distribution was good enough, brand was good enough. But if you need to influence or make our customers B2B or B2C buy when they're constructing, we need to have a fantastic ecosystem to play with. It involves interior designers, architects, contractors. So it's a complex ecosystem and that makes it difficult for any player to just come and go and win.

We have been there in India for the last 90 years, and we have that ecosystem like nobody else has. What is also interesting for you to see is that if you look at the market, the market is 55% Consumer and 45% Prof. This is a bit different than what we saw globally, because there is so much also happening in Consumer side. It's 55%, 45%. So in a way, equally divided. What that also brings is the synergy which we have in Consumer and Prof part of our business. Now this synergy is in products, this synergy is in go-to-market. If a consumer is using Philips at the home and if he's going to be a procurement person, there needs to be a familiarity with the brand to buy it for the offices. I think it's so critical that these synergies play in our favor.

And the last slide is about the market where you see lighting is just 5% of what we call as an addressable market for adjacencies. We have what it takes. We have the brand, we have the team, we have the technical know-how. We have the distribution for us to have a natural way into adjacencies, which are not only lighting. And that portion is very, very big. And I'm going to share with you some of the things which we have done around that.

So the market in summary, is compelling. It is not going to be a market for 1 year, 2 year, it's the market which is going to be there for next few generations. But if one has to win in this market, this market is very unique in terms of the characteristics. It is not a concentrated market. Kraig shared in lighting in U.S. He said it's a concentrated market. It's more big few distributors here. It's a very, very distributed market. And brand plays a big role.

So the first thing is brand. 50% of the market today is controlled by 5 brands. While there are 500 brands in that market. What that means is that even when there are so many brands, the quality, the reliability, innovation, brand familiarity matters. So brand matters, and it's a big differentiator. Even the new brands which are trying to come in, they have to spend money on building the brand. If you don't have a brand, the chances of your success in Indian market is very, very less.

Distribution, more than 300,000 mom-and-pop stores. 40% of that is in rural India. While e-commerce is growing, of course, it's growing modern retail is growing, but it is still less than 10% of the market. Now that means that the relationships, reach, which one needs to have, the access, the supply chain to reach to these places is extremely critical, and that's a big moat, which one has.

Also when it comes to Professional business, Professional business is not only about big projects. These are the small projects. These are the projects which are maybe EUR 2,000 projects, EUR 5,000 projects, they come from various parts of the country. And that, again, is a large base. And if one needs to win there, you need to reach, you need to have access, you need to have relationships to win in that place. India definitely rewards local depth. You cannot sell in India, whatever is just by importing from China, for example.

If you need to have speed, if you need to have cost, if you need to have innovation and the application, which is very, very India specific, you need to be in India. Also compliance is becoming much higher, right? So therefore, local for local design capabilities, local for local manufacturing is absolutely important. Last few years, we have also seen that India has really started growing in terms of exporting out, right? So now Apple exports, most of their mobiles out of India. Samsung, a lot of mobile phone manufacturers are putting money because there is arbitrage as far as the labor is concerned, and therefore, that is also boosting the export. So local for local, very, very critical.

And what I said, infrastructure is the tailwind. There are -- what you see there is a bridge which was led by us. It's a bridge in Bombay, in Mumbai, it's a bridge on which now municipality uses that bridge to start advertising. Now they are making money by advertising on the bridge, which is lit by our intelligent bridge lighting. But this is just the one bridge, India is a continent. So there are going to be many, many more bridges which are going to come in. There are many more tunnels, which are going to come in. So the infrastructure tailwind India has is very, very significant.

So I shared with you market is compelling, but if one needs to win in this market, only the companies who have the brand, who have the distribution, who have the relationships have a chance to win in this market.

Now let's look at, therefore, if this is the market, how are we placed in this market. Now let's make no mistake about it. India -- Signify is the #1 lighting company in India, much higher than the second brand, which is there. It is also the most profitable lighting company in India. It is also growing faster than the industry in India. So we really are in a good space and good place as far as India business is concerned. And there are a few elements why we are able to do this consistently.

The first element is brand. Philips in India is considered to be an Indian brand. I mean it's been there for so many years, and it is also a premium brand. So people are ready to pay 10%, 15% premium for buying Philips brand. But the market is laddered. It's not one brand which can go and tackle all the segments. So a few years back, we launched a brand called EcoLink. Now this EcoLink brand is again a brand which is in lighting, but it's also now getting into adjacencies. It's becoming a more of electrical brand, electrical goods brand, but it is able to straddle across the price points, right? So Philips at the top and EcoLink at the bottom. But both these brands are strong. Philips, amazing brand preference. It's something which we have, which definitely just gives us the premium which we want.

The talent is high quality talent in India we have. We are the employer of choice in India. If we have to have those relationships, technical know-how, if you look at any other lighting company you would have people who have had some experience in Signify. It is the place and not only for lighting, but also overall to have the talent. We also have a significant amount of our global functions operating out of India. Now it makes -- it helps because India per se, it's a big market as well as there are a lot of global technical R&D, our finance service center, all of that gets operated, but we get best of the best people there.

Distribution power, as we discussed, of course, we have more than 100,000 reach directly and indirectly even more. What we did in the last few years is also create a channel, which is called as Philips Smart Light Hubs. What does it do? If the market is moving to new points, the way consumers or small businesses make decisions is different. They want to go and feel the product. They want to go and see what all is available. they're not going to be buying just one product. They are going to buy a suite of products. Smart products need to get explained. And therefore, we started something which is our franchisee operation, which is called Philips Smart Light Hubs. We already have around 350 of them, and we'll push them up to even maybe 500 next couple of years.

Now this is very, very differentiated. Nobody else has it. It's a clear moat for us to premiumize. And the reason why we are one of the most profitable companies in lighting in India is because our mix of products is much better because we are able to premiumize the offering whenever whoever is coming to that smart light hub. We are also #1 in e-commerce. While it is less than 10%, but we have a position of leadership in e-commerce, in general trade and our own distribution, which is smart light hubs. So a fantastic distribution power, which is extremely difficult for anybody else to just get overnight.

As I told you that local innovation matters in India, whether it is hardware, whether it is software, all of that is to be made for India. And I think we have a fantastic team and innovations, which are only applicable in some parts of India. India is about wall lights. We created a lot of these innovations, which will sell based on the consumer insights, which we have from India. So very, very strong base of innovation. We are also the highest connected lighting base, whether it's Professional or Consumer. While in Consumer, is just 3% of our business, it's growing rapidly, 30% plus growth but I think there is a path to that, which is going to be even higher, and nobody else is as big in Connected versus us.

Manufacturing scale, I think it's a very, very important moat we have. This is not our own manufacturing. We wanted whatever As was saying that we want to have a manufacturing footprint where you're not the owners of it, but you play a big role of it. Already in India, we have a JV with the biggest EMS player in India by name Dixon. It's electronic behemoth. It's a 50%, 50% JV. Already, we are the biggest lighting manufacturer for India. What that means is that, big brands, small brands are buying lighting products from this JV called Lightanium. Now that makes us also very, very good when it comes to the cost base, which we have from our manufacturing.

All of this actually helps us to outperform the market and not once we have been outperforming the market for many, many years when it comes to financial metric. We are the best when it comes to the profitability, when it comes to market share, and we are much, much above the Signify average. So as I said, our playbook is leverage and grow. More India grows, I think is going to be significant benefit for Signify globally.

So if this is the position, I think there are just 5 things which we are going to be looking at, and we are focused in choosing these 5. On the performance side and on the portfolio side. On the portfolio side, we entered in a category called fans 2 years back. It's a big market in India. And with the temperatures which are happening now in Europe, I don't know whether it will become a market in Europe as well. But it is as big a market as lighting. It goes through the same ecosystem of the retailers, which we have. It requires a technical know-how. We entered that market because that market was also shifting when it came to technology. There is an introduction of what is called as BLDC motor based fan, which is basically brushless direct current motor-based fans. It's like what happened with LED to lighting.

Now that gave us a wedge to enter into the market where there was a technical change which was happening. And we had what it took for us to get there. 18 months back, we launched these fans under the brand EcoLink. And in 18 months, we -- I think we will be able to close already in top 5 of that BLDC segment. Of course, not fan, BLDC is a part of the bigger fan segment. But it has given us millions of euros in revenue. We will scale this up.

Not only are we going to scale the fans business, but we will also will -- we will enter into adjacent categories, which require brand, which requires access and which also requires the technical know-how. That's what we will do. And that is one big play as far as portfolio is concerned. How do we leverage the go-to-market synergies and brand synergies? There are inorganic options available or we are exploring. India is not a story of 1 year, 2 year, if we need to, and we are in a great position. I think we are in a position which a lot of people will be jealous of, to be very honest. We need to use that and look at some of the opportunities which might have, which are inorganic in nature. Of course, all those will be looked at from a financial sense what makes sense. But that is one more serious attempt, which we are going to be doing in terms of really scaling up India to the next level.

On performance, I think our performance is good, but we are not happy. We are saying, how can we accelerate it further? An acceleration in performance for us is premiumization. So as I said, branded retail premiumize it. How do we take smart lighting to the next level? There is no -- I mean, we are the biggest, but how do we scale that up even further?

As far as professional is concerned, there is a focused approach, which we have. We are verticalized our go-to-market. So we have vertical segments through which we go to market. And there are segments which we have identified where we will focus, whether it's global capability centers, 2,000-plus GCCs are coming in India, whether it is education, healthcare, these are the big segments where there is a lot of capital expenditure, which is happening. Semiconductor is another place where there are a lot of industries that are going to be set up there and of course, infrastructure. So these are selected focus segments on which we'll go.

But we will only succeed if we continue to be cost -- best in cost. And when I say best in cost, both in terms of our selects, which is NMC, but also in terms of our COGS, which is our BOM. So with not whole of the portfolio is Lightanium right now, progressively, we will look at taking more and more of that into our JV, which will also help us to ensure that we remain cost competitiveness. I think, I'm pretty convinced about being cost competitive on lighting for sure. but I think we are also bringing all that knowledge and say, how can we also be cost competitive from the beginning when we are getting into adjacencies as well. So this is it.

Just to get you back to the 3 points, which I wanted to establish. It is a strong market with macro growth, based on a lot of new light point creations, premiumization is happening, we are extremely well positioned here. Our position is distinct. So we need to just put the fuel and take it to the next level.

And we have a very clear strategy on how are we going to do it. I personally believe that not only are we are -- we continue to be the second biggest light source, but I think India is going to play a significant role in Signify's future journey. And that future journey will have a lot of numbers.

So with this, I will also have Zeljko to come on to stage for him to share what does it translate to?

Over to you, Zeljko. Thank you.

All right. Well, thank you. Thank you so much, Sumit, for sharing such really genuinely exciting opportunity and speaking very, very well and very concretely to the potential of profitable growth that we can unlock in our build portfolio. So that's a very good example of that.

So it's been quite dense for all of you, I'm sure, in the last 2 hours or so, you've heard many perspectives on our markets, our position and most importantly, on our plan forward coming from us, from Michael, from Kraig and just now from Sumit.

So what I will do now is to bring it all together, to wrap it all together into what does that mean for the value creation roadmap of Signify in the next years. So I've been with Signify for 9 years, of which 2 years in my current role as a CFO. So this time has given me a clear eyed view on where we stand. But it has also given me a lot of opportunities to engage with many of you present in the room and also connected online. And those conversations have been extremely valuable, very, very insightful to also help us sharpen and make sure that our thinking, our choices, and our decisions are holistic, grounded, but also meaningful to what matters to you.

So as As has mentioned, I think the last few months have been very energizing, very intense. So we've really been able to build together with the leadership team. So this is very important. I really want to emphasize that. We are strongly aligned across the leadership team in shaping the path to success for the company forward and very aligned on, first, identifying the opportunities, clarifying the choices, but also very aligned in making the changes we need to make to be a better performing company.

So I will -- now let me start first. And that grounded clarity, I want to say is very important. It's foundational for me on what we're going to share. It's really grounded. The clarity we're going to give on the way forward is at the core of what I'm going to share in the next 30 minutes or so.

So starting with the overall picture, a few key messages, and I will develop further each of them. So first, looking back, the past 4 years have been very challenging. Significant pressure on our top line driven by market conditions, but also structural changes in the industry have put our business to the test.

Now how do we -- did we pass the test or react? So I think first, we demonstrated real agility in gross margin protection and in cash generation. And there, I'm really genuinely proud of what our teams have achieved, knowing firsthand what it took to be able to drive that agility and resilience.

On indirect costs, we did take a lot of meaningful measures. However, we do recognize that those measures, those actions were more reacting to the event and not as proactive as it should have been. And I think this is an important -- a very important learning that we are feeding forward in our plan to enhance our performance.

Now looking forward, we have a clear grounded roadmap to achieve our 2029 objectives. And this is built both on the strength that we recognize. But as I said, building on the strength is not sufficient. And it's also addressing directly the areas that we need to improve.

So 3 priorities, 3 axis in this roadmap. First, stabilizing the top line. And this is really the combination of recognizing the different dynamics across our portfolio, the contribution of the build portfolio and managing in a value-preserving way, the harvest portfolio.

Second, improving profitability structurally. Here, very importantly, we drive a step change in implementing specific playbook. So you heard a lot about the playbooks, and I will come back to that again because it's very central. And it's really all about disciplined execution and the differentiation of how we drive disciplined execution across the different performance area.

Third, unlocking a structurally stronger cash generation profile. So in this roadmap, there are 2 foundational commitments that remain extremely important and will be maintained. First, robust balance sheet; second, a balanced capital allocation. So these are very important foundations that are sustained.

So I will try to put more numbers and a bit more insight into this resilient story I was just outlining. So here, you have a visualization of our revenue and operating margin and the different building blocks. So of course, as you can see, and if we start from the peak of 2022, where our revenue was EUR 7.5 billion, it's a 23% decline of our nominal revenue, of which 1/3 is foreign exchange translation and 2/3 is intrinsic decline of our revenue.

So what is important here is, how we have preserved profitability in this context. And let's look at the different building blocks. First, on gross margin. So it held and it actually improved. When you look at the cost of goods sold and the cost of goods sold are 2/3 of the total cost of the company, they've actually been adapted faster than the revenue decline.

At the same time, our indirect costs or non-manufacturing cost have been decreased net by 12%. So we've taken a lot of measures and a lot of -- and we've also taken advantage of our new operating model that was implemented in 2024. But here, it's fair to recognize that we did a lot of downsizing. So we did downsize a lot. However, we have not fully rightsized. And I will come back to that, which is an important element on the path forward.

So overall, if we look back in the context of a sharp decline or a sharp compression on our top line, the profitability resilience model has worked reasonably well. However, that additional pressure, especially in our indirect costs that moved, as you can see on the chart from below 28% in '22 to close to 32%. So that additional pressure is the main driver for the pressure that we faced on our operating margin, especially in '25 and also in 2026.

Now looking at cash. Cash has been consistently strong. So the cash generation remains strong through the cycle. And this is very important because it allowed first, financial stability, which was extremely important in that kind of environment, but also it gave us still the strategic flexibility that we could apply despite of those significantly deteriorated market environment.

So in a nutshell, when tested, the Signify financial engine has held, margin protected, cost actively managed, cash strong. And this is a very important foundation that we will be building on.

Now you've seen this slide earlier, and this is -- this slide is really summarizing the heart of our 2029 ambition. And I would like to give more clarity on what it is built on. So it is anchored on the strategic framework that As has shared earlier, portfolio focus and performance step-up with strong discipline in execution behind both. And this is what is behind our objectives, our financial objective.

Now looking at the numbers, comparable sales growth 0% to 1%, adjusted EBITDA margin around 10%, free cash flow 7% to 8%. These are not aspirational ambitions. These are very, very grounded objectives that are built on a very clearly articulated roadmap and trajectory that we have built at a very, very granular level, and I will come back to that.

So let me give a little bit more texture on the bottom part of this page, which is more about the levers. On the top line, this is -- first, that's the combination, and this is really the effect of the portfolio focus you heard about. So with the growth of our build portfolio and the -- how we manage the evolution in our harvest portfolio with -- all-in-all, leads to a stronger growth profile that will get stronger, of course, leading to the 0 to 1 and of course, structurally stronger beyond. So that's the first element.

The price pressure easing dynamically and sequentially as we go is also an important element that will also give support to the improvement of our top line and our ability to get to stability and back to growth.

On profitability, again, a very important lever is the execution of those 3 distinct performance playbook that we talked about, applied across the different performance areas. Across the board, gross margin discipline being actively sustained. So this is an important element and driving competitive costs throughout the portfolio at a much more granular level, and I will come back to that element as well.

On free cash flow, simply put, there are 2 main levers, which are really at the core of unlocking the stronger cash generation, of course, profitability expansion, so getting our structural profit up and the optimized inventory, which is the most significant driver in our overall working capital efficiency improvement.

So now I will go in each of the different parameters, starting first with the top line. So you heard before the different dynamics between build and harvest portfolio. So here -- so we, of course, looked very, very thoroughly at each and every performance area, each and every portfolio on the dynamics of both volume and price.

As you can see here, it's a very -- it's a mixed bag. So it's a very contrasted dynamic. So let me maybe go through each of the 4 businesses.

So if you look at Professional, you heard, I think, a very, very clear and concrete example earlier from what Kraig presented for the Cooper Lighting business. In the connected -- in the project and especially in the connected projects, we do see and we drive a positive dynamic both in volume and price. And there are very clear levers behind that.

In the stock and flow, it's a bit different because here, we are in the much more competitive, much more fragmented space in our professional business. And there, we do see stabilization in volume and still continued price erosion, albeit at a more moderate pace than what we have experienced in the last few years.

In Consumer, connected and luminaires, you heard it from Michael earlier, it's both volume and price going into a positive direction. At the same time, in lamps, of course, the volumes will follow the technology replacement cycle, while we will be able to continue to exercise strong price power on the back of a very strong brand.

In OEM, here, we do expect continued challenging market conditions with stabilization, right? And especially when we look at the price pressure, which is expected to ease compared to what we have experienced.

Conventional, very predictable in the volumes following the dynamic of the market. And in pricing, we are able as the market leader in that segment to continue to exercise price power as we have been doing over the past few years. So in a nutshell, contrasted dynamics across the different parts and the different portfolio. But altogether, there is really a clear and a visible and tangible path that gives us confidence on our ability and the roadmap that goes with that to stabilize the top line of the company and to bring it back to positive territory.

Now I will go back to the -- so now it's about the profitability, and I will zoom in on the key areas. So again, you've seen that. I really want to come back to that because it is absolutely central to how we are structurally in a consistent and disciplined fashion, bringing our profitability up and improving and looking at the different portfolio. So we do not run -- I think clearly, we do not run one uniform profitability improvement program across the company. It's really about -- and we have taken a lot of effort to really design and craft those 3 playbooks and what they really mean in the detail to make sure that they are implemented in a way that is specifically adapted to the performance areas, to the reality of the space we are operating, but also to the reality of our current profitability today.

So Playbook 1 is the operating leverage one. You have heard many examples today of where this applies. The Playbook 2 is really very simply put where you need to bring back the profitability to the entitlements where it belongs, whether it is in build portfolio or harvest portfolio. Right? So this is more about the execution part. And the Playbook 3, which is very important because this is how you manage effectively and maximize the value in those portfolio that have low or no growth, but where the profitability today is accretive and strongly contributing to the overall profitability of the company.

So what ties all those 3 playbooks together is one single performance management system that we are driving and supporting and also powered by this transformation office that we are putting in place. But the most important is the granular P&L accountability and ownership that is driven through the organization. And here, it's very important because this is where we are leveraging the most our operating model, right? We have a new operating model that has been in place for 2 years now. That's absolutely where we can really extract more value out of that operating model in stepping up and enhancing structurally our performance.

So this differentiated approach in the profitability management is what makes me really confident in our ability to achieve this 10% objective by 2029 because we have the clarity, and we know exactly what lever applies where.

So here, what this slide does is to bring together the different angles to our profitability improvement path. So our adjusted EBITDA in 2025 was 8.9%. Our outlook for '26 in the range of 7.5% to 8.5%. And we have initiated a reset. So we are in a transition year. And now we are from here a very clear trajectory and the roadmap to restore and gradually improve our profitability towards the 10% objective by 2029.

So what you see on the left-hand side, the left chart is a kind of a simplified overview of the contribution of the build portfolio and the harvest portfolio to that profitability improvement. So the build portfolio represents roughly 2/3 of the improvement. So this is roughly 2/3 and 1/3 still contributed by the harvest portfolio.

Now on the right-hand side, what you see is more the contribution of impact of the 3 playbooks. So here, the first one, which is the operating leverage playbook, so it contributes roughly 1/3 of the overall Signify profitability improvement. The turnaround playbook contributes 2/3.

Importantly, the third playbook, which is about maintaining profitability in our low growth portfolio, is neutral. So what neutral means is that the outcome is to contain the drag effect on the overall profitability of Signify moving forward. So each of the playbook play a very important role. It's very important here, if you look back -- step back, it's -- the point was made by us earlier. The fact that you have so much that is dependent on the disciplined execution of the playbook 2, the turnaround, means that it is a lot of self-help, right? So the dependency on the growth, which is typically what will be more in the operating leverage is actually not the biggest part. And that's also very important because that's also because we know in the details what does it take to drive that. So this is also why we are so confident.

So again, this is a simplified overview, looking at the 2 lenses, the portfolio lens, the playbook lens. But behind this, there's, again, a lot of very granular accountability. We've done a lot of work on P&L archetypes design to really be captured in a much more specific way. And this is, again, what is behind the confidence we have on our ability to deliver on -- our commitment to deliver to this profitability target. So again, it's very solid. It's grounded and it is based on a very tangible foundation with a strong ownership behind.

So zooming in on one important element of gross margin strength, of course, is is a foundational element of our profitability story has been and will continue to be. So this is really to show why we are confident on our ability to actively drive and sustain it. So here is just another angle to look at the gross margin development over the last 2 years, which we believe is important because when you look at -- so the gross margin from 39.7% in '23 to 40.1%, so an improvement already.

But within that, if you look first at what was the impact of the price and mix erosion compounded, it's a 210 basis point headwind. So it's very substantial. At the same time, we've been able to more than offset that through bill of material efficiency and also all the actions we've taken on cost of goods sold efficiency in general. So these are 2 very different elements that have been at play. So the message here is that the gross margin discipline is proven.

Now looking forward, how we make it proven? What is proven sustainable? Well, there is no automatic pilot button, very clearly. So there are 4 concrete levers that will really allow us to sustain and build on that strength of gross margin resilience.

First, price discipline, systematic and proactive. And here, with our commercial excellence step-up, we have identified opportunities to do better. It's also, by the way, an area where AI use cases are extremely helpful to drive at a very granular level. We have a lot of SKUs. So the pricing discipline power we can apply can be enhanced. So we have very clear opportunity defined.

Second, the structural mix improvement. And that's a very direct outcome of our portfolio focus. The portfolio focus leads structurally to a stronger and a more favorable mix on the gross margin.

Third, procurement. So it's about procurement scale, but it's also about the R&D-driven efficiency assessment that comment earlier, and this is an important element when you look at our -- how we yield the return of our R&D investment, it's a big component. And here, we are yielding very, very attractive return that flow into our gross margin strength. So it's a very important element, and it's a substantial part of our overall R&D investment. The value engineering feeding into our ability to extract the most competitive and the cost leadership in our bill of material and the cost of goods sold.

Fourth, manufacturing and supply chain gains, productivity gains. So here, again, the step-up on supply chain excellence is offering and clear opportunities to strengthen. So together, these are 4 drivers that are giving us, again, a structural path. It's not just an assumption of an extrapolation, right, at a high level, top down. It is really with a very granular path being defined across each and every portfolio for the whole of Signify.

So moving from gross margin to indirect cost. So I said it earlier, if we look back, we did take a lot of measures to downsize, but we have clearly not fully rightsized. So the goal -- the objective is very clear. We will resize overall for Signify our indirect cost to 30% or below by 2029.

Now what I want to share is a bit more clarity on how we will do that, but also what it means contrasting with the execution -- disciplined execution of our strategy and also how we feed for the investment. So this is extremely important because this is really an anchor point between the portfolio focus and the performance step-up.

First of all, it's permanent universal cost efficiency across the board, across all portfolios. So each and every performance area is held to the same standards of cost discipline and cost competitiveness. So as used the word business as usual in the DNA. So this is very important, and this is the baseline.

Now how we define competitive costs? There in our very, very granular and P&L architect design, we also identify and you heard earlier what it means to be benchmarkable cost competitive in the stock and flow business in the U.S. is very, very different than what it means for a consumer connected portfolio or performance area. And this is really the differentiation is also on the definition of what competitive means.

We've been doing a lot of external benchmark to make sure that how we define what good looks like in terms of cost competitiveness is really, really sharp and adapted to each of those performance areas. So now what is also differentiated is what do we do with that efficiency. So it's efficiency across the board. We do have opportunities in all the portfolios, whether they are built or harvest.

Now how do we apply the generation of efficiency and the liquidity that we extract out of those focused efficiency actions. Well, depending on the portfolio you are in or depending on the playbook you are executing, simply put, either all that efficiency flows to the bottom line improvement to the operating margin improvement or is partially redirected to focused investment with a very, very sharp definition of where we will apply those investments. But again, here, the very simple basic logic, but which is extremely important is that efficiency funds growth.

Now I just want because this is also the question we get a lot from many of you is how much more can you cut? So here, I think the distinction in the path to get from the 32% to 30%, as you can see in the chart, in the proportion, it really means that we go after all the opportunities for cost efficiency, which allow us to fund and to create the liquidity to fund the adequate level of investment that we'll keep doing in order to successfully execute our business strategy. So this is very important to keep that in mind that in that equation of cost efficiency, it's part of it.

So we have 4 concrete levers to make it happen. First, granular and differentiated resource allocation by portfolio, by playbook, sharper and more tailored investment decision within each of the performance area.

Second, P&L accountability embedded at each and every level of the organization, cost ownership where it belongs and not delegated upwards.

Third, AI-powered cost efficiency. I think, it was mentioned in one of the key areas. I am very excited and not only based on the hype, but having also the proof points and many of the use cases that are running as we speak that are really showing that we have a tremendous potential through AI-enabled capabilities to help us improve the intrinsic and structural cost efficiency. We have a lot in our back-end processes in each of our function or each of our processes, which we can further optimize, and we have very, very concrete use cases that are running as we speak.

Fourth, growth investment with rigor. Each and every incremental OpEx or CapEx really needs to earn its place. So it's the right portfolio, the right return and the right timing, very, very important.

So in summary, overall for Signify, a lower indirect cost, cost efficiency driven across the board, which allows us to fund the required level of investment that are being applied with a very, very sharp and very tailored approach and a very focused approach.

Now moving to cash. So strong cash generation has been a feature and a consistent feature of Signify through the cycle. And this slide is to explain how we will make sure that it is sustained and structurally strengthened by 2029. So our 2026 guidance on free cash flow is in the range of 6.5% to 7.5% of sales. Our target for 2029 is 7% to 8% of sales. So this range may not look dramatically different from our historical level.

But what changes fundamentally is the quality and the structural nature of the drivers behind it. And there are 2 main drivers. First, margin expansion. The path to structurally improve our profitability towards circa 10%. The cash conversion that comes with it obviously flows directly into our free cash flow improvement. And this is, of course, the -- clearly the single biggest driver.

Second, working capital improvement and more specifically, inventory optimization. And this is really one of the very concrete outcome of our step-up focus on supply chain excellence. So there, we do have opportunity. Our level of inventory is clearly too high. And we know what is the path to bring it structurally, not just as a one-off, but structurally to a more optimized level, again, with a lot of granularity behind.

So an element which I also wanted to highlight, which is part of the equation is the restructuring cash out component. So of course, in order to implement that consistent cost efficiency that I was just talking about, yes, we need to be able to keep the level of restructuring that help us to do so and the yield and the return on those investment or cash investment that we put into restructuring are obviously very, very strong.

Now if we look at the trajectory, I think this year in '26, of course, we have a higher cash out linked to restructuring due to the program, the cost resizing program that we announced at the beginning of the year. Now from there forward, we will see that impact to lower year-over-year and from 2029 to be structurally much lower.

So as a conclusion, an objective of free cash flow of 7% to 8% by '29, which is built on structurally better earnings, leaner working capital and a restructuring burden that will gradually fade. So again, there's a lot of granularity. It's a very grounded roadmap that we have developed to ensure that our cash generation engine continues to be structurally strong through the cycle.

So let me close now with our capital allocation policy. So it's updated, balanced and designed to support value creation through 2029 and beyond. Our first priority is, remains to maintain our investment-grade credit rating. So we have recently secured EUR 300 million in committed financing through the European Investment Bank to address our upcoming debt maturities. And this proactive step reflects our commitment to a robust capital structure, and we will also reduce our gross debt by EUR 100 million. And going forward, we'll continue to manage the gross debt levels in accordance and the appropriate level of scale to our earnings.

So with this, the balance sheet is in good shape and will remain so. So that's first. On dividends, so we are moving back to an earnings-based measure with a payout ratio of 40% to 50% of the continuing net income. So continuing net income, as a reminder, is the net income adjusted of non-recurring elements such as restructuring. So this is an other non-recurring material element.

So just for reference, the payout ratio of the dividends of '25 paid in '26 is at 61%. That payout ratio in the previous 2 years was 52%, 53%. And in all the years before, it was between 40% to 50%, right? So we are back to a range that is also consistent with the underlying payout ratio we had over the past few years.

So again, here, we -- so of course, let's be clear, that means a reset in the near term when we look at it from the dividend per share. But we strongly believe this is absolutely the right and the more sustainable approach, one that balances consistent shareholders' return with the financial flexibility to invest in growth and execute our strategy. So a dividend that grows -- that will grow with our earnings is more durable than one that is not synchronized or that doesn't reflect the underlying business.

On investments, so we will remain extremely disciplined, both organically. I talked a lot about how we apply investment, sharp focus in our OpEx part. The same applies, of course, in our CapEx. Inorganically, on M&A, you heard it from us earlier, our M&A approach is really focused on strategic fits. Really contributing to growth and clear growth potential. And of course, value creation with very, very stringent metrics to assess any M&A opportunity that would be assessed, which would be bolt-on in nature and not transformational bets.

Finally, on buybacks. So we do not intend to resume the share repurchase program that we had started in 2025 and that we have paused. But we will reinitiate share buyback programs when the right conditions are met within this balanced capital allocation framework and principles.

So again, I really want to be clear here, residual cash will be returned to shareholders. That commitment stands. So taken together, this is a policy which is built on financial discipline and continued and genuine consistent commitment to shareholder value creation today and through 2029 and beyond.

So on that, I will close the presentation. And I think now we have a 5-minute well-deserved refreshment break, after which we will come back to start the Q&A session. Thank you very much.

[Break]

All right. I hope you enjoyed the presentation this morning. So I would now like to open the Q&A. [Operator Instructions] We will first have a few questions here from the audience. and will then also -- yes, also answer questions from our online viewers.

Thank you. So I'll keep to one question. It's Daniela from Goldman Sachs. Maybe, I mean, you talked us through the endpoints in '29. Can you talk us a little bit through how you see the cadence towards these targets? Should we expect maybe some of the headwinds from the actions you have to do to get there first? Or is it sort of a linear pace maybe for both margins and cash, particularly focused on that?

Yes, I'm happy to answer it. And maybe Zeljko, you can also comment on how we see the numbers. Like I said, we have a transformation office set up with about 40 to 50 kind of transformative actions. Some have a very clear time line and deliver a lot more linear. Some are a bit more one-off. So one of the -- of course, I said for some of the performance areas, we keep all our options open, and we are exploring what is the right answer in terms of portfolio. Now those could be things that come very sudden and could have an immediate impact. So it's a bit uncertain exactly on the timing of some of these actions.

But in terms of the numbers, we assume, Zeljko, you want to talk about our path towards '29.

Yes. So on the trajectory that I mentioned, I think clearly on -- I'll start first on profitability, it's gradual progressive improvement from where we are on the base of 2026, improving to '27, '28, '29.

On cash, it's going to be more stable in the first year. And then, what I mentioned earlier that structural stronger cash generation really to fire up more as we see really the structural benefits, in particular related to supply chain, inventory and the easing of the restructuring cash out to be more visible towards '28, '29. So -- but it is a trajectory of improvement on the profitability. And there are path to stabilize the top line. There, of course, you have -- this is more -- where you have more external market sensitivity, but still there, there's a trajectory of sequential improvement. So it's a sequential improvement roadmap with stability on the cash generation.

That was first Martin. Over here.

It's Martin from Citi. In terms of how we can measure your progress over the next several years, obviously, some of the crown jewels are embedded in other divisions that are offset by some of the harvest portfolio. If we think of something like connected lighting, will you give us stage points in terms of how that's growing, how that's profitable. So that it's not sort of diluted at the group level when we sort of externally measure your performance. It's very difficult, I think, from the outside to differentiate from the build portfolio in the harvest when we see your numbers just because of the way that you report. And perhaps give some idea, As, to what stage post you'll give us over the coming years to see how these different parts of the portfolio are working?

Yes. Thanks for the question, Martin. And that is very much recognized. I also feel we should create a bit more transparency about who we are, how our portfolio buildup is and how we are progressing on the execution of the strategy. What we are not planning to do is to have a complete overhaul of the way we report. We'll stick with that structure, but we will create real clarity around how we progress on this strategy. What that -- how that exactly looks like, that is still work in progress.

The next question was over there in the front row.

Danny van Doesburg, APG. Many questions, but I stick to one as well, for Kraig. I was interested by the remark from As Tempelman about benchmarking business unit managers to peers. So my question to you would be, if I benchmark you against your peer, how far are you off from your benchmark?

Yes. So there is a gap in terms of the profitability between us and the #1 player. It's primarily driven by 3 reasons. First of all, from a North American perspective, the P&L perspective, there's a scale advantage with the #1 player. But we have a lot of opportunities, which I talked us through as it relates to the mix of our business in terms of specification and connected that's already closing that gap, and we'll continue to close it. And the third reason is really around sort of the operations and supply chain piece I talked about.

I think our competitor got an earlier start on some of that than we did with some of the ownership changes that we had and what's happened in the last 6 years with COVID and supply chain. And so we think we have a long runway ahead there and are already closing that gap, and we'll continue to.

It's Akash here from JPMorgan. I have a question on connected consumer luminaires or consumer luminaires. I think, this is a category where 8 to 10 years ago, Signify was there and making losses and then it kind of disappeared within Signify.

And then now today, you talk about it's a very large market, and there is a need for Signify to reenter in this to able to grow. I want to understand like what has changed in those last 8 to 10 years? Why do you think this is now a good market category? And then maybe perhaps you can also elaborate how much of this consumer luminaires is within Hue, where I think probably the growth aspects may be stronger given the brand value and synergies? And how much of that is outside Hue?

So it's true. They tried a long time ago to make luminaires work, but they had a whole portfolio from low end to high end, from chandeliers to -- it was basically a very, very wide portfolio, and it was a global approach.

What's different is, first of all, consumer journey has changed. Right? Consumer journeys are not necessarily everybody goes offline to see the shop, but it's also going online. This is where we have strengths, right?

Second is, we're not going as broad as in the past. We are not going into the chandeliers, et cetera. We are going specifically in a few family ranges. I'm talking about 3, 4, 5, 6, 7 ranges with beautiful designs, which we get tested and the design will be adapted to a regional taste.

What you do sell in the U.S. as a luminaire will not necessarily sell in Belgium, because it's just a different taste. So we will specifically on the product designs, have tailor-made solutions and the go-to-market will be different. I think those are the 2 main differences.

On your question between you and Philips or the non-connected part, they will be on both. Equally, both areas are a big opportunity.

And Michael, to add to it also in terms of geography footprint, you don't want to go worldwide. Do you want to go on...

Yes. So we want to focus on Germany, Belgium, Netherlands, U.K., Nordics and U.S. So we have really focused approach. Thanks.

It's Marc, ING. I have a question. You did a strategic review. And I think you mentioned a few times, you're the only real global lighting company in the world. And I think it's quite clear what the benefits are on the back side of it, given the technology. But on the front side, given that you have so many different shops on the front side, is it possible to really start benefiting from being a global company with all these different front sides? Or do you need to change stuff there also over the medium term to maybe reignite that growth even faster, taking the benefit of being a global company?

Yes. So for me, the answer to your question, and thanks for raising it is you need to be the best of both worlds. And the portfolio focus is not just about this is the business I want to be in. It's also the choices we make within the business. So like Michael just said, it's not around are we doing consumer luminaires or not? No, we play with distinct families in distinct market in distinct segments through distinct channels. That's where we win.

Equally for Prof, we look at which are the segments we really want to focus on. So really empowerment with clear choices within those businesses to go after where we are well positioned to grow. And that is really very choiceful. So a lot less broad than we used to be playing in most segments across 55 beyond markets and in a very broad segment coverage. So that's one part of the answer.

Then yes, there is part of being Signify is really advantageous. And Michael, you mentioned a few of these things. And I think I mentioned it myself as well is when it comes to sharing R&D or sharing corporate infrastructure or benefiting from sourcing power, we really use the strength of Signify in the portfolio to be very competitive in those businesses where we choose to play. So that for me is really the answer. It's a lot more concentrated in where we want to compete, but fully leveraging the scale we have.

We now have a question from our online viewers. So I would like to read that out for you all to hear it. Is the 0% to 1% growth target, the organic growth you expect in 2029 over 2028? Or is it the average growth between 2026 and '29? If it's the former, does it mean you expect a decline in each of the years between 2026 and 2028?

So if you have the exact trajectory in mind or do you want to...

Yes. No, I think -- first of all, on clarification on what that's 0% to 1%. So this is the 2029 comparable sales growth. And in the trajectory from this year, it's a continuous improvement. So it's a sequential improvement towards the 0% to 1% combined contribution of the different portfolio.

Let me say a few things about the growth, because, I think, it's a topic of real interest. First of all, we are confident and committed to outperforming market when it comes to growing the portfolio. And we do that despite the fact that we are more exposed to still the conventional part of the business. So that's an important comment on growth.

What the market is hard to predict the market. The best prediction we came up with was a flat market. That's why I started with this morning. If market does better, we should do better, right? But that's the commitment is to outperform market. That's first.

Secondly, the 0% to 1% you saw is an outcome if you have a weighted average between a build portfolio, which is 70% to 80% of Signify and a harvest portfolio. That built portfolio should show growth, right?

And let's be honest, we have seen decline. So we're not just turning it to 0 and stabilize revenue. We are growing that build portfolio. 2% is our best guess, and it's what we feel very confident we can deliver on. And we don't want to make false promises. That 2%, however, is offset by continuous decline in our harvest portfolio. And that harvest portfolio is currently at minus 11%, and we predict we will be around minus 5%. So if you do 20% minus 5% and 80% x2, you get to 0% to 1% CG.

That harvest portfolio then assumes that all these businesses stay with us. And I have also made very clear that some of these businesses that belong to the harvest portfolio, we consider all options, including consolidation through partnership and divestment. So if any of this business would go out of the portfolio, that would also change the equation. So the 0.1% to 1% growth needs to be really looked at and considered with those different perspectives in mind.

Question over there.

This is Chase from Kempen. I have a question for Michael on the consumer space. So you had the nice video showing some of the competitive sort of new features you have. Could you speak a little bit about sort of where you see your main competitors in terms of their technology? Are they several years behind or less? And how do you think that sort of plays into your premium pricing that you have today? Should that be some pressure over the years? Or how are you looking at that?

Yes. It's a good question. Thank you. I think the main difference between, let's say, our mainly Chinese competitors is that they don't play the ecosystem game. They sell very good, very nicely, but a connected point-to-point solution, which you can change. And they're good at that. We're in a different game. The ecosystem what I tried to explain this morning makes a big difference. And that's also why you see in the R&Rs, et cetera, the attachment rate of our ecosystem is much higher, at 10.5% in Netherlands example, 17 and going up and up and up. That's just because once you're into the system, you're so happy with it that you just want to expand.

That effect, if you look at the Chinese competitors, they don't have because they're not geared to do that. Average attachment rate would be there between 1, 2, maybe 3 at best over lifetime where we're in the Netherlands 17.

And most importantly, yes, in the end, the consumer decides. Right? So you see it on our loyalty, on our R&R ratings, they leave the word of mouth with their friends and family. They make the ratings from Amazon, et cetera. But there's a big difference between selling just a connected lamp with all respect or having an ecosystem.

Having an ecosystem is really, really difficult, which goes back 10 years once you bought the first Hue lamp and it still works with the latest features.

It was one of the things when I came into my role that I was a bit surprised how fanatic some of our customers are when it comes to Philips Hue, it's amazing. And actually, one of the constraints we had, we want to get all these bridges out, and we want to cross-sell devices on those bridges, like the ecosystem Michael was talking about.

But our bridge was limited in terms of how many devices it could actually operate on the bridge. Then you upgraded the bridge. And within weeks, we were sold out completely. So it's a very powerful system that once you get these bridges out in this household and you can start adding the device.

The other thing, Michael, I think you're underplaying it, we have a really cool roadmap going forward. And that is continuous. I mean, you saw some of the examples we have space awareness. But there's a lot more coming for those you love us, there's a lot more coming in terms of features.

Typically, if you see the demo, you will get a a taste of it, that is spatial aware, motion aware, there's more to come.

And Michael, versus Chinese, we also have a legislation data privacy, all of that, which is so very different for us.

It becomes more and more important, where do you store the data.

I will first read another online question before we move back to the audience. Please, could you provide some further color on your M&A criteria? How much capital will you be allocating to acquisitions? What will be the sweet spot in terms of deal size? And what ROIC will you be targeting?

Sure. Maybe I will come back to what I mentioned on the -- when we look at the lighting space, as I mentioned earlier, first of all, when we look at M&A opportunity, it is more bolt-on by nature. And we have a few very recent examples that were also mentioned in -- by Kraig in his presentation for the U.S. small size, very, very suited and absolutely fitting very, very well in our strategic fit.

Now on the criteria, the strategic fit is one. It has to contribute to growth. So this is also very important. It has to be as a priority strengthening the momentum and how it powers our build portfolios and in line with what we have shared today.

On the return on invested capital, there are many criteria that we look at from, of course, the return and it has to be accretive from a value creation perspective compared to our cost of capital, obviously. But we also look at other parameters at the payback and how it is also contributing and how accretive it is to our operating model.

So there are different criteria. We have always a very, very detailed screen test for assessing each and every M&A opportunity. But in a nutshell, contributes to growth, creates value accretive to the value creation and the return on capital employed and fits absolutely clearly with our portfolio focus.

Question over there.

Thank you Rajesh Patki from Barclays. I think one of the slides you presented today mentioned data centers. I'm just keen to understand what part of the business is currently exposed to that end market currently? And are you looking at that as an opportunity to invest for growth?

Kraig, I think you're best positioned, Kraig, to answer this.

Yes. So data centers has been a very fast-growing segment for us. That's the good news about data centers. One of the challenges with data centers is lighting as a percent of that total bill of material isn't as big as some other segments, let's say, hospitals or education or office spaces, for example.

But given the rapid pace of growth here, our data center business is probably up between 30% and 40% year-over-year. And it tends to use more, I'll say, general lighting there, but there's also a high degree of, sort of, specification around that because speed is so important here to, sort of, have a standard bill of material from a lighting and control standpoint that you can roll through projects very rapidly. And we're very well positioned here, especially sort of given in the U.S. where we came from out of Eaton, who has a big focus in this area. We have some folks that are still with us from Eaton that used to call on that area that have really amplified our growth in this space. And it's a very significant number for us this year.

And may I just add, this is a good example of how we also leverage global portfolio because equally in Europe, we expect a lot more data center capacity to be built. And we can also take, right, what we learned in the U.S. into Europe, where we are working on a specific lighting offer for data centers as well as, for example, a specific lighting offer for defense, right? So we're really agile in terms of where the music is we want to be. And obviously, you know that the defense spend in Europe has gone up significantly. So that's one of our focus segments as well.

Over there in the second row.

Wim Gille, ABN. In the capital allocation policy, you rightfully moved up the investments in growth, both organic as well as inorganic. However, if I look at the cash flow bridge, the other component, you expect it to be stable. So how should I read into this? Is like the ability to invest in growth a function of kind of the P&L that you have available? Or are you making deliberate choices to invest and to drive top line? So what is driving that, let's say, marriage between these 2 elements?

And the follow-up question would be on the growth side, the 0% to 1% growth. That's purely looking at the current portfolio, if you will. You also gave quite a number of examples of adjacencies where you intend to move the fan business in India, but also some -- quite a lot of other opportunities there. Is that embedded into the 0% to 1%? Or is that a cherry on the cake that you can actually use to outperform the expectations that you've set out today?

Zeljko, maybe you answer the first, I can then...

Yes, I will take the first question, and thank you for the question. It's an important clarification. So when we look at our capital allocation, when we look at supporting organic growth, I think we have to remember that our -- we have a very CapEx-light model, right? So all the efficiency of the focus on our investment to support organic growth is a lot to do with that OpEx and structural efficiency and how we redeploy our investments. So you see that already built in the free cash flow, but the CapEx element, which was not mentioned on the slide, relatively stable. It's low with last -- in '25, it was EUR 140 million, half of it being tangible, half of it intangible, so more software related.

So the CapEx part, I think, is very limited as part of the equation, but it's very much fundamentally how we are ensuring and there, we are back to the playbooks. I think the answer to your question is fundamentally sitting in how we are applying our different playbooks to the different portfolio to make sure that the level of investment required is applied in the right portfolio with the right timing and with very clear ROI returns associated with it. So this is really what builds into our choices to support organic investments, mostly OpEx, while we keep, of course, the discipline on the CapEx part of our investments to support growth.

And on the second question, when it comes to adjacencies, I would like to separate the strategic play from an opportunistic play. And what I mean with that is, if it is a strategic play, it's really around we have unique capability or we have technology or we have a product linkage where we say this is adjacent space we want to move into. And that should be a strategic choice how we want to position the company. That could be in energy efficiency. I showed some examples in security, intelligent traffic.

We, as a leadership team, we have asked a small team to investigate all these different value spaces. And we are kind of now bringing that down to a few set of opportunities that we believe are very promising. Yes. But it's too early to conclude any of that, while we keep the rest of the company focused on the lighting becoming a better performance-focused lighting company. So that's on the strategic play.

Then there is the opportunistic, which is a bit more on the cross-selling channels. And India is a good example. We have an enormous distribution power, Sumit, so that we have all this retail presence. If you start to put fans through that, yes, you talk millions, but it's actually tens of millions of fans that we will generate revenue from. We can play that on a broader set of products within those markets where we have that strength, and we could also play it more widely. So -- but I see that as more opportunistic.

Now to your question, none of that is in these numbers. So I would not say it's a cherry of the cake, but it's probably the cream on the cake, right? This could be very significant. But again, I don't want to make any false promises or create false expectations, but it is definitely an area that we will continue to explore.

I would like to ask another question from the live -- from the webcast. And after that, I've seen that here. With the new dividend policy, do you see the 2026 dividend being cut, do you still commit to a growing dividend going forward?

So to be very clear, do we commit to a growing dividend going forward? Absolutely. And we commit to an attractive dividend policy. But what we do, and that's the reset that we apply in updating our capital allocation policy now is to come back to an earnings base or payout based on earnings.

As I said earlier, if we look at the trajectory of the dividends payout over the last few years, it has been historically always in the 40% to 50% of continuing net income. Then over the last 3 years, it increased, so 52% payout in 3 years ago to 53%. And then last year so 25% dividends distributed, in '26, then we moved to 61% payout. So of course, what we've seen is that you saw the chart earlier, significant compression of the top line, significant, of course, compression on the earnings in that cycle, while the continued dividend was increased on the dividend per share.

So what we are applying here is the reset to have the balance. We've spent considerable amount of time, and we've also included a lot of the inputs and feedbacks from many of you here in the room and also many online to make sure we really cater for that balance.

Again, it's fundamentally, and that's the commitment to ensure consistent shareholder return while we support the execution of our strategy and support our growth. So I think this is where, yes, the reset is needed now, and we strongly believe this is the right timing, and this is absolutely the more sustainable approach that we need to. But again, the commitment on growing dividends forward is absolutely there in line with our commitment to structurally improve our profitability.

Second row.

Frank Claassen of Degroof Petercam. A question on your inventories. Do you have some kind of targets where you think you can reduce your inventories as a percentage of revenues? And what are the main drivers, why you think you can reduce inventory?

So maybe I can -- so we have, of course, -- and there, you need to go, obviously, because as you've seen, the composition of our portfolios is diverse. But yes, I think we have clearly and very thoroughly defined what optimum should look like. So that's very clearly defined. Compared to the base today, I think we have clearly a few percentage points of improvement that we know absolutely how to go after.

Now on the levers, I think there are many elements coming into play there. I think there's a lot to do, of course, with our planning accuracy, right? I think our ability to predict and when you think about the granularity of SKUs we have to sell, that's a big area. We have also a lot of structural actions in improving, and this is also linking to how we deliver better to our customers. So there's a lot of actions that are on hardcore supply chain efficiency.

So I think there are a few key levers. I think the step-up in supply chain very clearly is one of the very, very powerful levers of structural value creation that we have. But again, it takes time, right? Because when you want to do that structural, I think you really need to go deep. But I think it's really fundamentally about the planning upstream, being better at forecasting and improving our cycle in delivering value to customers while eliminating somehow the waste that we generate fundamentally more linked to that portfolio. So I think we have been extremely granular, and I'm very confident, of course, going into all those details on the ability. And this is really a big element of our self-help contribution to improve and develop a leaner working capital.

And Zeljko, to add to your answer is we have looked back as well about how -- what does good look like when you look at our own history on inventory management. And of course, the current levels of inventory are slightly higher also because we have seen so much disruption, right? We had COVID, we had the tariffs. We had other blockages. So it has been also tough to manage supply chain. And if we get in a bit more stable context, I think we should be able to bring it down.

And the other thing I want to say about this is, this is a good example of how we manage performance. So we now have a Chief Supply Officer who works with a small team and the business units on what is best practice and what is expected in terms of norming on supply chain when it comes to demand forecasting, new product introductions and so on, portfolio health. And we will systematically across all performance areas start implementing that best practice. Teams empowered to do it themselves, but with very clear benchmarking and very clear norming of what good looks like, and that's the way forward.

Marcel [indiscernible]. You mentioned that your free cash flow ratio improves from what you target this year, 6.5% to 7.5% to 7% to 8%. You can also argue it deteriorates because the gap between your adjusted EBITA and free cash flow will increase sharply. It's 1% for this year. And if I look at the past 7 years, it's 1.7%. And now the gap increases to 2% to 3% whilst you say inventories will go down to your working capital, you don't have to spend that much more on provisions for reorganization or whatever. So I'm a bit puzzled about this gap of between 2% and 3% between adjusted EBITA and free cash flow.

And as a follow-up on free cash flow, at what level leverage ratio do you consider share buybacks?

So I'll try to address the different components. First of all, on the building blocks of what I mentioned earlier, which is how we develop a structurally stronger. So of course, the adjusted EBITDA, right, which is what matters in the end on the free cash flow. That's the biggest component, right?

Then part of what we need to invest to ensure structurally this cost efficiency step-up that also is going to come from also partially, not entirely, but partially from restructuring cash out that we need to invest. So this is an element that has to be balanced with the structural improvement of our profitability driver. So that's one.

Second, on the working capital, yes, it's inventory. So you do have an improvement in inventory, but then also you have part of it, which is offset because we have payables, right, that are in the short term turning to the inventory. So net-net, I think that's going to be the second element.

And third will be that easing of the restructuring effort, while we get the return on. So yes, I think it's kind of logical in the way that, that gap should change. Also remembering that in the past, a big part of our restructuring was linked to our conventional decline, right? It was the most substantial amount. As we go forward, it's very much linked and centered on our intrinsic operational excellence efforts. So that's also changing a little bit the shape how you should look at from profit to free cash flow.

Now on the second question on the leverage, I think we are -- we still -- and this is consistent with what we've indicated, 1.2x to 1.3x is what we believe is the right healthy level of leverage, consistent with our overall capital allocation policy.

With regard to share buyback, as I said earlier, it will be determined looking at all the right conditions, right, to make sure that once we are very clearly securing and that's important, our balance sheet strength, making sure, of course, and this is back to the previous question that we can go back to an attractive and growing dividend in line with the adjusted approach, making sure that the investments that are needed are funded. And then, of course, any excess cash will be returned.

So I think on the share buyback, I can't give you a straight answer to your question on the when and the [indiscernible] but at least securing the foundation of our balance sheet strength is absolutely fundamental and that we are absolutely committed to. And we are committed to grow dividend, and we are committed to implement and reinitiate share buyback programs where the conditions are met. So that's the principles in our framework.

Question here in the front row.

Peter [ Sanders ] from Antares Capital Management. Mr. Tempelman earlier in your presentation said that you want to provide a bit more transparency on the various subcomponents of your large portfolio. So please let me have a shot at it.

If we talk about one of your largest businesses, the U.S. professional business, on the one hand, we heard a very strong story from Cooper ever since it was acquired. But then on the other hand, we heard the story about the incumbent, the Philips business, Genlyte, where you even mentioned the word turnaround. So I'm just curious for the U.S. professional business as a whole, what is roughly the profitability difference between, on the one hand, Cooper and on the other hand, the Genlyte business?

Well, in terms of size, first of all, Kraig, I think I'm right when Genlyte is about 1/3, right? It's about right the size of Cooper. So it's a much smaller business. I think it serves the market really well. But the business model as it currently has evolved into doesn't work for us. So we are too spread out with too many brands, too many SKUs, and too small in the areas where we play. So we really want to refocus. And that's actually also where the company originates from with having very strong specification brands for very specific segments, particularly on outdoor and within the outdoor segment, also very strong on the decorative outdoor.

So when you see all these beautiful street lights in all these different places in the U.S., that could well be the Genlyte solution. So we want to really refocus the company, rationalize the brand portfolio, rationalize the product portfolio, but in a way that we are still meaningful and very relevant, right, for the agents that we work with. And that's the strategy going forward.

And that then also means that we can be a leaner organization, much more focused on our R&D investments, much more focused also on rationalizing our supply chain on the back of some of these choices that we make. So that's clearly the strategy. We have new leadership in Genlyte that has fully embraced this way forward. And I believe we already see early signs of improvement.

In terms of profitability delta, I mean, the EBITDA percentage on profitability, EBITDA percentage on Genlyte now is a low single-digit level. So that needs to be brought up. And it can be done. We know the way out.

Question over here.

Thanks for all the info on India. Maybe not a big market, which I think you were not really addressing today is China. You've, I think, in the past talked about a lot about increased competition. So do we need to see China as in the harvest bucket or in the build bucket or partially or...

I'd say, it's a very good question. And actually, I apologize, I should have mentioned China probably much more proactive. But there's 2 stories to China. One is a manufacturing story in China. So if you say China for the world, where clearly, we see overcapacity in that market. We see production lines being underutilized. And we think we will benefit from building very strong relationships with top-notch manufacturers in China or Chinese manufacturers positions outside of China.

So we will do that, and that is part of our strategic choice to be less exposed to the manufacturing of the more commoditized products. We will engage with suppliers around the world, but also a big part of that will be with Chinese manufacturers. So that's -- we will not try to beat the Chinese suppliers in their manufacturing game. That's not part of our strategy. We will focus our manufacturing efforts close to customers, make-to-order specification projects.

Now then within China, China is a very fragmented market, where even the big players have 3%, 4% market share. So it's very -- a lot of players active. We are very strongly positioned in the professional business, where we have -- it's a business that is working well for us in terms of profitability, where we have a very strong partner network. So it's a business we like. It's a business that is stable and is working really well for us.

The consumer business really has 2 dimensions, the online and the offline. Online trade channels, we have a strong representation, deep reach also works for us. The online is really where the difficulties are. It's very competitive online China. It has its whole own ecosystem in terms of Tmall, JD, the big platforms in China.

And we currently have a team on it to find our way how we best leverage those platforms. But the jury is out on whether we can succeed on that or whether we need to take a more fundamental choice about how we play in consumer in China. So that's where we stand. China works for us. It contributes positively to the overall performance of the portfolio. But clearly, the online consumer business in China is a red ocean, and we'll need to find a way there that is sustainable.

Thank you. A follow-up question from my side on -- first, congratulations with your anniversary. It's almost 10 years now that Signify since IPO. I remember from that moment that you had this brand license deal with Philips. We know it was about 0.8% of sales, I think, at the time. Let's say, if you take it from free cash flow as a percentage of paying license fee, it could be 15%, even if you take the 6% to 7% of sales today of guidance. What -- can you give us an update, because I think it was a 10-year license fee deal you made with Philips at the time? And how is it still continued? So that's the background of the question.

So we have strong brands across the portfolio. Some of that was also because of our history and heritage. We just talked about Genlyte has a very broad portfolio of brands. Some people say, well, don't yet far too many brands, but I'm always surprised around how specific brands are in certain segments. Some brands have a great reputation in indoor, some on outdoor. So it's quite specific in terms of its applications.

Now Philips brand in France is very important and very valuable. We are -- particularly in our consumer business, we exclusively use of Philips. On the B2B side, selective use of Philips. In India, very much Philips brand. So Philips, the Philips brand will continue to play an important part of our portfolio. And we also have a clarity with Philips in terms of how we deal with the current license agreement and how we want to take that forward.

That said, we also have invested in building the Signify brand, and we truly believe that the brands can really coexist. There are other segments where brand matters a lot less. It's about the company that provides the solutions and the services, and that could well be Signify. So we are trying to optimize and not make choice for one or the other.

We have one more question here in the second row and then we'll take one last online question and a last question in the audience after that, but first over here.

It's Akash from JP Morgan again. I have a follow-up on this growth in adjacencies because I think one of the most interesting aspect of today's Capital Markets Day is this growth in adjacencies. And here, one of the interesting presentation was presentation on India because I am from India. And when I go there, I see that many of the competitors you have in Lighting are coming from these adjacencies. So I guess, it kind of makes sense to you -- for you to go and approach in these markets.

And again, here, you have a brand, Philips, very well known in India. So the question I have is that like when it comes to these opportunities, and I think Sumit talked about some inorganic possibilities as well, how you're going to address it? Because India, when we look at valuation, it's very high valuation market. And one thing that we see in India is that many multinational companies are coming and raising money in India because they can benefit from these like high valuation.

So I want to ask like are you bold enough to do that kind of strategy where, let's say, if you want to grow rapidly in India and adjacencies, then maybe one way out could be to list in India to get a market value and multiple that allow you to make a platform in India. And on that point, also like when it comes to Philips brand and what you can achieve, is there any red line on which brand or which type of products you can put Philips brand name and which type of products you can't. So at least we know what is possible in this growth in adjacency and what is not?

Yes. So maybe, Sumit, I can leave it to you to talk a little bit about how you deal with some of the branding. When it comes to our strategy for India, and please complement me, Sumit, later, but the -- we look really at all options. So there's the organic growth option. There's the kind of bolt-on option and then there is making a bigger move option. Now whatever option we pursue, of course, we look at value creation. And you are right that the multiples in India are very high. So that value creation needs to work, right, whatever way you choose to go. So I would say, in that sense, the strategy is very clear. We want to grow in lighting and beyond lighting. How we do it, we are really exploring all options. Then on the brand question, Sumit.

Yes. So I would just want to add, I think one big difference if you see over the last few years is that what we have gone ahead and looked at these P&Ls in a different way. It is very clear that we need to do -- he always says that you have a Mercedes, but you are driving it in a small lane because we have all those advantages with us where we really can expand. Now of course, your point is valid that valuation there is very, very high. But as I said that we are looking at all the options to make sure that it is something which we could look at. That itself is a big change.

So on brands, I think Philips is very clearly a lighting brand, yes. And one of the reasons we are able to manage the profitability in India is because we are able to make sure that Philips is up there. And we introduced the brand in EcoLink, right? So I think it's an opportunity for us to really make EcoLink into multiple categories easily. And of course, if there are categories where Philips kind of fits in, then I think we have to go back to wherever if these are there. But right now, we are looking at Philips far more in lighting to be sure that we are able to extract value from them.

Now we have one last question from the online viewers. The OEM segment has not been discussed much today. Where do you see the role in both the open OEM market and as a key component supplier to Signify luminaires.

Yes. So let me put that again in the context of our manufacturing focus, where just to repeat is that we want to focus on project specification, made to order, major engineering, anything that you don't produce in large batches, right? Components don't belong in that category. So the OEM business that is primarily focused on components business is something that in terms of our manufacturing strategy is not in the build category. It's one where we want to consider all options. The business has gone through really tough times. We have seen a really tough market. It has shrunk. The team has done extremely well managing the profitability to the best possible level. Personally, I don't think the OEM business offers the returns longer term that we like. So we are really looking at either optimization or seek some sort of consolidation in the market through a partnership or divest the business at good value.

Now that -- then there's the question around, well, don't you need that components like in-house to serve your growth businesses. We want to make sure that we fully leverage our strategic partner relationships, not to make sure we get best cost of goods sold and that we get components at a competitive level, but also that we have supply chain resilience and security of supplies. So we will not go out with auctions on components. We will seek strategic relationships with suppliers if we choose not to keep the OEM business with us. But that is clearly one of the areas together with the lamps manufacturing businesses that we really consider for portfolio moves. I hope that clarifies.

And now one last question here from the audience.

It's Adam Parr from Rothschild & Co Redburn. So just a question on connected, please, mostly on the pricing side. So I think on the market slide, it said minus 4% price erosion from 2025 to '29. And then in the growth directional side with the arrows for connected projects in professional -- connected and projects, then connected and luminaires in consumer, I think it was positive. So I just wanted to see, is this really an impact from the other 2 businesses that are there, so the projects and the luminaires? Or is it just Signify can outprice the market? And if so, what is your confidence in doing so?

Yes. Well, maybe I ask first the business, the P&L leaders to comment on your pricing.

Yes. So there's no question we have more pricing power. I talked today about how hard it is to build these systems and sort of the relative pricing power when you have fewer competitors and more differentiation compared to specification where there are a few more competitors, but still differentiation in stock and flow where it's least differentiated, sort of the pricing power that you have sort of goes up along with your ability to differentiate how many competitors and how responsible the players are in that space.

And in Connected, just fundamentally, given the investments that it takes to be successful either in consumer or professional, given the investments made, people tend to be more responsible in terms of their pricing discipline in this segment than we see in others.

Yes. For consumers, pretty similar. Having an ecosystem is really, really difficult because it's not just about now connecting the current products, but if you bought one 10 years ago, you need to make sure that also works, right? That gives us a technology advantage. Then you've got the brand, Philips brand in consumer, most powerful brand in lighting in the world, Philips Hue, the same when it comes to Connected. Then you have the other one, that is consumer desire. Do you want to have that product, right? And there, we're going to really stimulate demand with the product design, et cetera, we talked about.

So at this moment, we are already the most premium, let's say, one of the premium brands there, and that's going to remain. And with design, we're going to explore that even further to creep up and get more value extraction.

Yes. I think for -- what I learned is that on this connected lighting, you need the hardware and the software and the route to market. So it's complex. So you're quite protected in terms of pricing power. That said, what we predict and we shared this morning is we see that inflection point coming on connected lighting, where volumes will go up much more. And yes, that's operating leverage for us, but we're not the only one. So that might -- yes, we have been maybe too conservative, but we predict there will be some price erosion as a consequence.

All right. This closes the Q&A for today. So I'm going to hand back to As now for some closing remarks, and then I will come back with some logistics about the remainder of the day.

Great. Well, thank you to all my colleagues. I basically want to go back to where we started this morning. We recognize that we have an opportunity to do better. And that's why performance step-up is so integrated part of our strategy. We're also clear that we want to be more granular on where we choose to play. So we've really taken that portfolio choice of what to build and what to harvest.

Now the portfolio outlook was for '29 numbers. That is 24 to 36 months away from where we are. We come from a past where we have seen year-on-year decline. We're going to stop that decline and return back to growth. I really want to leave that as a key message. And that is subject to portfolio choices and a performance step-up in a market that is unpredictable, but our best outlook is that it will be flattish. We do that with a team that is fully, fully engaged. This is not something that I need to sell in the company. We have co-created this strategy. We have all committed and we are convicted that this is the right thing to do. And we are truly committed to deliver that.

And the numbers are what they are. We think it's credible. We think it's doable. We are committed to delivering it. And if we outperform even better with our commitment to keep that balance sheet strong to allocate the cash back to shareholders and to be very wise if we choose to make significant investments. Those are the key messages for today. I would like to thank you so much for coming to Eindhoven on what is a very hot day. For all of you online, thank you for dialing in, staying with us and we look forward to seeing you again soon. Thank you.

Yes. Thank you very much for coming. We are now inviting you to the lobby of our Lighting Application Center where we are serving lunch. And after that, in about 45, 50 minutes, we will start with the 2 tours that I mentioned earlier of the Lighting Application Center and the Hue Experience.

Hello. Welcome to the Signify Q1 2026 Results Conference Call hosted by As Tempelman; CEO; Zeljko Kosanovic CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions] I would now like to give the floor to, Thelke Gerdes, Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's First Quarter 2026 Earnings Call. Before we begin, I'd like to draw your attention to the forward-looking statements, risks and uncertainties and non-IFRS financial measures disclaimer on this site. With me today is our CEO, As Tempelman; our CFO, Zeljko Kosanovic.

During this call, As will discuss the highlights of the quarter and key business developments. Zeljko will then walk you through the financial performance in more detail. As will then come back to discuss the outlook and closing remarks. Our press release and presentation were published at 7:00 this morning, and a transcript of this call will be made available shortly after.

And with that, I would now like to hand over to As.

Well, thank you, Thelke, and good morning, everyone. Good to have you on the call with us. Thanks for joining us today. Like Thelke said, let me start with sharing some observations on the first quarter. It comes at no surprise that we continue to navigate a very uncertain global environment with, of course, the conflict in the Middle East, associated cost inflation, tariffs, softer demand and also the overcapacity in manufacturing. And all of these things, of course, are reflected in our sales for the quarter.

What we do is we remain very focused on what we can control. And through disciplined price and cost management, I'm pleased that we maintained a strong gross margin and delivered also a solid cash generation.

Now when we look at the B2B side, the professional business, demand remains soft in the trade channels across Europe and the U.S. and also on the public projects, so the more the outdoor public projects. On the positive side, in Europe, we saw a good performance on the indoor projects. And also in emerging markets, we delivered growth despite the challenges of the Middle East.

Now what stands out is our Consumer business. Our Consumer business where on the positive side, our sell-out to consumers continues to grow year-on-year, but our results were impacted by inventory adjustments from major retailers, leading to what we believe temporarily lower sell-in to this channel. We continue to focus our efforts and our actions to outperform this market. And at the same time, of course, we progress our strategic portfolio review to focus the company for the future.

We stay close to our customers and our suppliers. I've been visiting many of them, and we remain confident in our ability to respond to market risks and opportunities. I think that's a short reflection on the quarter.

Now let me share with you a few highlights. One of the areas we continue to invest in is our connected consumer offering. And at the premium end, of course, that is Philips Hue. This quarter, we launched an exciting new feature of Philips Hue called SpatialAware, and that makes use of your smartphone or tablet to -- and then you can set it such that it understands the layout of your room and then you can create much more natural and immersive light scenes. And this is on top of developments such as improved Apple Home integration and also an AI assistant.

I think on the next slide, you see the image of a meeting room of Fedabo Group's new headquarters in Italy. Fedabo is an Italian energy consulting firm that chose Signify because of our energy-efficient solutions. It's a project we are very proud of. We installed 300 light points, but that includes the NatureConnect. You see it here on the ceiling, which you see here, but also 3D-printed myCreation fixtures and true line luminaires. So all of that resulted in a very energy-efficient lighting system, great lighting quality that supports the well-being of staff and visitors of Fedabo.

And that brings me actually to the third highlight. because this quarter, we also had the launch of our new sustainability program or actually the next chapter of our sustainability program, Brighter Lights, Better World 2030. And this program is about the role of lighting beyond illumination to improve well-being, safety and security, food production and access to solar lighting.

And it's all about lowering our emissions through energy efficiency, and it's about advancing circularity as well. It serves our customers by helping them to reduce energy and resources and lower costs and adhere to regulations, particularly in Europe.

It serves society with lighting that respects nature and reduces emissions as we maintain our commitment to reach net zero emissions by 2040 as a company. And also importantly, it serves our investors because all this sustainability product offering make good business sense. They work economically.

Now with that, I'll hand it over to Zeljko, who will take you through our financial performance of the quarter.

Thank you, As. And Good morning, everyone. Yes, we will indeed now walk you through our first quarter financial performance, starting with the key developments this quarter on Slide 9.

Our connected installed base increased to 171 million light points, demonstrating continued strong traction. Comparable sales declined by 5.1% in the quarter. Gross margin was robust at 40.6%, reflecting disciplined pricing and cost of goods sold management even against a high prior year base. The adjusted EBITDA was at EUR 83 million, resulting in an operational profitability of 6.5%.

The margin decline versus last year was mainly driven by lower volumes and the resulting fixed cost under absorption, primarily in the Consumer business. Net income was at EUR 8 million compared to EUR 67 million in Q1 last year, mainly impacted by restructuring costs related to the cost reduction program we have announced in January. Free cash flow was at EUR 47 million compared to EUR 40 million last year, driven by working capital improvements.

Moving on to the Professional business on Slide 10. Comparable sales declined by 3.7%, driven by continued weakness in the trade channel in Europe and in the U.S. Public projects were softer in both markets as we saw some delays and reallocation of funding, while connected lighting continued to grow.

Emerging markets, including China and India showed growth, partly offsetting declines in the Middle East. Our direct exposure to the Middle East remains limited. Adjusted EBITDA margin increased by 20 basis points to 7.3%, reflecting gross margin traction supported by pricing actions and cost discipline.

Now let's continue with the Consumer business on Slide 11. Comparable sales declined by 4.6%. What is important to highlight here is the disconnect we saw between sell-in and sell-out, as was mentioned by As earlier. While our reported sales were impacted by destocking at retail level, underlying demand from consumers remained solid with a strong sell-out to consumers and growth across digital platforms.

In addition, we saw weakness in Klite, while our India business continued to grow strongly. In terms of profitability, our adjusted EBITA margin decreased to 5.7% compared to 10.8% last year. This was mainly driven by the lower sales volume and the resulting operational deleverage. Overall, the Q1 performance primarily reflect the transitory channel dynamics, while underlying consumer demand remained solid.

Moving on to the OEM business on Slide 12. Comparable sales declined by 4.8% in Q1, reflecting continued softness in the OEM market. We did see some stabilization versus prior quarters with price pressure easing compared to the levels we had experienced during the previous quarters. The adjusted EBITDA margin was 2.5%. Profitability was impacted by lower volumes and the resulting fixed cost under absorption, partly offset by cost measures in the quarter, which we continue to implement.

Moving on now to the Conventional business on Slide 13. Comparable sales declined by 17.9%, in line with the structural decline of the business. Adjusted EBITDA margin was at 13%. The margin was still impacted by temporarily higher manufacturing costs related to site rationalization, while pricing actions provided some support. Overall, we are well on track to restore the profitability in the second half of the year.

Let's now look at our adjusted EBITDA bridge for the first quarter. Our adjusted EBITDA margin decreased from 8% in Q1 last year to 6.5% this year, a decline of 150 basis points. The primary driver was volume, leading to fixed cost under absorption. The combined price and mix impact was negative 40 basis points, however, improving from negative 150 basis points in Q4 as price erosion moderated and our pricing actions gained traction.

Overall, pricing dynamics became more constructive across the portfolio, particularly in Professional and OEM with additional support from price increases in conventional. Our cost of goods sold showed sequential improvement through continued cost actions and productivity gains.

Lower indirect costs provided a positive effect of 100 basis points, however, not sufficient to fully offset the volume effect. Currency had a 50 basis point negative impact on the adjusted EBITDA margin in the quarter. This was primarily driven by non-hedged currencies, including the U.S. dollar, which was addressed and offset through pricing actions as for other cost inflation elements.

Overall, the EBITDA bridge reflects the soft start to the year in sales volume, while also showing the gross margin resilience and cost actions are helping to mitigate part of this pressure on the top line.

Moving on to Slide 15. Working capital as a percentage of sales improved to 6.2% from 7.2% in the prior year period, an improvement of 100 basis points. Inventories decreased by EUR 94 million. Trade and other receivables reduced by EUR 124 million. Payables had an effect of EUR 120 million. Overall, these improvements reflect the continued disciplined working capital management supporting our cash flow generation.

With that, I will now hand back to As to discuss the outlook and closing remarks.

Thank you, Zeljko. Well, you -- the slide is up. You may recognize this slide from our last call. As you can see, our outlook for 2026 is unchanged. We expect an adjusted EBITDA margin to be in the range of 7.5% to 8.5%, and we will continue to manage inflationary pressures as we have done in the past.

And with our cost program is on track, so we expect to feel some of the benefits coming in from the cost side in the second half of the year. We anticipate free cash flow to be in the range of 6.5% to 7.5% of sales, supported by that continued discipline on the working capital side.

Now before we go to Q&A, of course, I would like to invite you all to join us here in Eindhoven on June 23, where we will be organizing our Capital Markets Day.

And with that, I would like to hand it over to the operator for questions and answers.

[Operator Instructions] Our first question comes from Ines Lefranc from Goldman Sachs.

It's Ines from Goldman Sachs speaking for [ Daniela ] here. I just wanted to ask what do you see in terms of incremental impact from Section 232 under the new calculation methodology?

Thank you for your question. So as you mentioned, the revised framework became effective in April, early April with the move to full value methodology and a clearer rate structure, 50% or even 10% [ 0 ].

So we are still, at this point, assessing the impact across the portfolios, but there is quite some variation by product depending on the level of metal content. So overall, we see generally a positive impact, but any potential benefit will be managed within our overall cost of goods sold alongside other cost dynamics.

So we -- basically, we do not see that as a material implementation of those new measures or this new framework does not mean a material step change, but rather it's just one component as part of the broader cost environment that we are actively managing holistically.

Makes a lot of sense. Could I possibly ask a second question? Just do you see any tensions in the supply chain due to the Middle East situation?

So what I can say is so far, a very limited impact in particular on our Q1 performance, first of all. And most important is one of the important elements that we've been monitoring is the safety of our people, of our colleagues in the Middle East and their family. So that has been, of course, a very important and primary point of focus. In terms of exposure of our Middle East business as a whole, it's limited. So we have a limited scale of exposure of the business in the Middle East.

And then to your question on the supply chain side, I think for Q1, we've not seen a significant impact. And what we expect, of course, coming forward in terms of cost inflation is what is impacting all the commodities and input costs that are more directly linked to oil prices on mechanical components, plastics, obviously, on some other elements and of course, in part of our outsourced products. So we do expect inflationary pressure to come in the coming months.

And we're also looking at very closely and monitoring tensions on potential supply chain scarcity. So look, these are all elements that we have been preparing that we are well equipped, let's say, to mitigate in terms of sourcing optimization. We have a lot of levers of sourcing optimization that we have already planned. And of course, as needed with pricing actions as well.

So I think we have the plans in place and ready to manage with the right agility as you will see this developing. But limited impact so far, that's what we can say for Q1.

The next question comes from Max Yates from Morgan Stanley.

I guess my first question is just on the cost inflation that you mentioned just then that you would expect to see. If we just think about some of those main areas of cost inflation, how much do you think you'll have to put up prices to offset those?

And what kind of price rises have you announced already in March and April? Do you think the competitors will follow as well? Or do you think the primary offset will be much more coming from supply chain optimization, taking cost out? I'm just trying to understand how big could the magnitude of inflation headwind be? And how much price are you planning to put through as a result?

Yes. So maybe I'll have a go at that. Zeljko, you might want to complement me. I think -- thanks for the question. Of course, it's all for us pretty uncertain about what is going to happen and how things are going to evolve in the Middle East. So -- and the impact also varies across different parts of the portfolio.

So for example, in India, right, we saw that the immediate shortage of fuel and also the inflation on plastics is much higher than we see the cost of goods sold going up elsewhere in the world. So it's still -- we still are navigating through that. The main increase, of course, energy costs, commodity prices like plastics and so on and that affects transportation costs as well.

Now to your question, what do we do on the pricing side, we take very pointed actions. So depending on where we see the pressure on our cost of goods sold, but also in terms of where we think that we can stay competitive while putting pricing up, that is where we will take very disciplined pricing actions. So it's not one price increase across the globe. It's very pointed on segments, on geographies and on certain parts of the product portfolio.

What we have seen so far is that our teams have been quite good at keeping that margins at the resilience level. So we are very confident that on the crop side, for sure, we can make sure we retain that gross margin by taking the right pricing actions.

Zeljko, do you want to add anything?

And maybe just a follow-up. Could you talk a little bit about how demand trended through the quarter? And I guess, particularly, you talk about the kind of consumer demand sort of remaining robust and most of the negative impact being kind of channel inventory destocking from some of your sort of distribution partners or some of the people that sell your lighting. I guess when I look at a lot of the kind of consumer confidence indicators, they seem to be kind of falling off a cliff in April.

So I guess I'm just wondering sort of any initial take on sort of how April is holding up? Are you seeing any of this in your business? Because it looks to me like the consumers and consumer confidence indicators are suggesting things are about to get quite significantly worse.

Yes. No, we see the same thing. And actually, consumer sentiment has been pretty low for some time, and it has also further come down. So -- but we don't yet see that in terms of demand. So we see indeed cautious consumer sentiment, but still strong demand for connected lighting.

And on your question around April and the second quarter, I expect growth in the second quarter from the consumer side, and we also see that in April, where our sell-in and sell-out numbers have converged much more. So we recognize the sentiment, yet we are still optimistic on the sales.

The next question comes from Sven Weier from UBS.

The first one is actually on the OEM business, where the organic developed much better than we thought. And I was just wondering what were the constituents to that? I mean you talked about less price pressure. I was wondering how important was that as a contributor to that. But also did you actually see some prebuy effects, maybe some customers already starting to stock up ahead of potential price increases or supply chain issues?

And how much is actually the phasing out of the customer discontinuation that you saw last year. So really, really interested in those moving parts, especially on the OEM side.

Yes. Well, on the OEM side, indeed, we, of course, had a very challenging 2025. Let's remind ourselves of that. And we see it easing out, both on the volume as well as on the pricing side.

Quite -- we've seen quite a few announcements in the market of price increases. Some of that is being implemented, but we still saw some price erosion, but it has eased out a lot since last year. And it's too early to really conclude fully, but we do see that the market is kind of bottoming out. And therefore, this price pressure is easing.

On the volume side, whether customers are stocking up ahead of price increases, we don't see so much of that. So what we engage now on with customers is pretty much back to normal. Of course, that is still to see how that develops. But so we see actually, I would call it more stabilization of the OEM business to much more constant levels.

And you didn't see any kind of prebuy effects in the other -- in any of your other businesses like in the professional trade channel, for example?

No, not notably, not significant, no.

Second question I had was just with reference to the upcoming Capital Markets Day because as you alluded to, you want to focus more on the areas that are structurally growing and deemphasize those that -- where there is an issue. I mean, how should we think about this? Does it mean it's more targeted applications of the strategy so that like it doesn't sound like you can sell like an entire unit. It's more about maybe also having to close down individual areas within the divisions.

I know you're going to talk about that in 2 months' time, but just to get an idea about how strategy-wise, this can actually be implemented.

Yes. Well, what can I say on Capital Markets Day? The -- I think we'll start off really with telling you a bit more about how we see the business to create a bit more insight and transparency around how our business is built up. And of course, we have seen a huge transformation of the market and technology over the last decade.

So what does our portfolio look like? And how do we see the prospects of the individual bits of it? And then I think a very important part of the strategy is how do we get most of what we have today, right? If you look at those respective parts of the business, what are we doing to outperform markets. And there will be a series of really important areas where we can do better to really get to first quartile performance.

And then there is the question around if you look at that portfolio, where would we want to invest for the future and where we want to put our money and time and invest. And that's -- and where do we deprioritize. I think that's the kind of clarity you can expect by the end of June.

Now how that will play out, I mean, it's too early to share as you will understand. Now is that just on the very high level growth consumer OEM? No, we will also show a bit more granularity that how are these businesses build up because you really need to understand a lower level of segmentation to make it meaningful.

And when you say you -- those -- some businesses you will invest less, does that also include that you could divest? Or is it just a function of investing less in those areas?

Well, I mean, for the businesses that we think are of less interest to Signify for the future, I think we will explore all options, yes. And where we are on that, I think we will let you know by the end of June.

And then just a very quick follow-up for Zeljko on the Section 232 because you said it's a positive impact. I mean, do you mean positive impact you pay less tariffs after or more tariffs and you pass it on? Or how should we understand the positive?

Comment on positive was looking at the blended because as I said, it's a very [ growth positive OEM ] granularity. But all in, it's on the cost impact compared to the new baseline of tariffs. So it's really on the cost side. it's less pressure, let's say, on the tariff cost that we see for now overall, but it's not a very material impact one way or the other. As I said, we are assessing [ indication. ] It's not an additional headwind on the dynamic of the tariff part of our cost base.

The next question comes from Martin Wilkie from Citi.

It's Martin from Citi. I just wanted to come back to the Professional business. You talked about softness in the trade channels, which have been growing for a few quarters now. Just to understand, is that beginning to show any signs of easing?

i think there was some views that the tariffs meant that a lot of Chinese capacity was sort of diverted from selling into the U.S. to perhaps being sold into Europe. And obviously, we haven't quite lapped the 12 months of the full impact of tariffs. But is there some signs of easing in that trade channel weakness in Europe?

Yes. Let me say a few things about -- well, specifically on Europe, your question. So let me say a few things about the trade channel in general. I mean what we basically see is that the lighting category with our main distributors is down, quite significantly down, so high single digit down. We performed much better.

So our business is still seeing some revenue decline as well, but a lot less, right, than the category of our distributors. So that implies a gain of share of wallet, which, of course, we are happy with. Now that decline is a buildup of a smaller volume component and a price component. That price component, that price erosion was much larger and indeed is easing out. And have we seen the bottom of it, too early to conclude, I think.

But from what I have seen also in terms of the dynamics in India where -- in China, where a lot of these products are being produced, it is such that we have reasons to believe that we've kind of reaching bottom and that, that price pressure will ease going forward. And we've also seen that actually.

At the same time, we also see that of the mix, right, there's a growing part of the lower end of the portfolio. So -- and that indeed is also stabilizing, but that has also played a role. So it's a mixed effect of volume product mix and price. But indeed, to your question on price, we think that it is easing and it's a lot less than what we have seen in recent quarters.

That's helpful. And just if I could follow up on the Projects business. You do talk about some improvements in Europe. But one thing that's happened in the background is the performance of Buildings Directive in Europe, which I know has been a very sort of slow piece of regulation to get implemented, but it does become, in theory, a big driver of building regulation rules effectively as of this summer. It's probably too early to see anything, of course, in Q1.

But is that providing signs of hope for perhaps not improvement straight away, but that you begin to see more renovation work, including lighting retrofit in European projects?

Yes, indeed. We see that as a very positive development is building regulation. Now what is very important is that this regulation is actually enforced. So that we still have -- if the jury is still out whether we did see enforcement of that. But yes, if that were to happen, then indeed, we will see many projects upgrading in Europe. That's very positive.

And like I highlighted on the indoor side in Europe, we have grown the business and outperformed market. So we're happy with that trend. The challenge on the project side is much more on the public side, particularly outdoor municipality lighting is where we still see softness in the market. So that's the public spend side.

[Operator Instructions] Our next question comes from Wim Gille from ABN AMRO.

Yes. This is Wim Gille from ABN AMRO. I would like to have a bit of a follow-up on the Professional market. Basically, when I read into the details, it appears that Europe is doing a bit better than previous quarters. And I just want to feel if there's a bit more granularity on if Europe is really improving underlying or if this is just a matter of comparable base.

And in relation to that, the profitability in the Professional business was quite a bit better than what consensus expected. Can you give us a bit of feeling on how profitability was impacted in the Professional business in the quarter, both on geography as well as the market impact? And the follow-up question would be -- and that's related to the European market, how are the Chinese behaving at this point in time?

And judging by the performance of Klite, this part of the market is still struggling in terms of performance. And that should point to ongoing pressure from Chinese competition in Europe. So can you give us a bit more feeling on how the Chinese competition is performing in Europe?

Okay. Well, many questions. I'll try to give you kind of a narrative, and please let me know if I haven't answered all of them. In terms of -- if we take a geography view on Professional, we saw that we grew in China, we grew in Rest of World.

If I zoom in on the U.S. and Europe, in the U.S., basically, we saw that our indoor projects was good, was -- we did, I think, perform markets, but we saw some real softness on the public side. And you see that also reflected. We've got 2 businesses in the U.S., the Cooper business is in Genlyte Lighting Solutions and Genlyte in particularly exposed to outdoor projects is there we saw a big weakness, while Cooper was more or less flat versus previous same quarter last year.

So I think Cooper has outperformed on the bigger portfolio on the indoor side, while Genlyte was more exposed to the outdoor side, we saw a drop. And a similar trend you see in Europe, where our business has performed well and actually delivered growth on the indoor side and less so on the outdoor side where you're much more exposed to public spend.

Now of course, we hope that with all the prospects of infrastructure investments and significant budget becoming available in Europe that we see some of that money actually hitting the market. But so far, we have not really witnessed that. Then within Europe, we see that Southern Europe was more positive than the main markets of Germany, France and Netherlands.

So Northwest Europe, in that sense, is a bit behind on projects than what we see in the Mediterranean. Mediterranean is also catching up on a low comparison base. But our business in Mediterranean grew, while in the Northwest Europe, it was still softer.

And then you made a specific question around -- or a specific comment around the China manufacturing site in Klite. There is still a high underutilization, and I expect that will continue not for quarters, but for years, underutilization of manufacturing capacity in China. Now we have felt that in the trade channels, but as we discussed earlier, that we see that easing out, less so on the project side, where we still have a lot of made-to-order and made to engineering business.

Klite is more consumer and bus oriented. That's our manufacturing site in China. There, we saw a drop in volume, but that wasn't so much because there were less orders. That had more to do with the supply chain and availability of components where some of the orders were moved into the second quarter. So I wouldn't link that to the Professional business.

I hope that answers most of your questions. But if I didn't, please let me know.

No, it surely does. And I have a follow-up question, if I may, on the consumer side where you had some inventory corrections. Just trying to get a bit of a feeling on how severe it is. So you already mentioned that in April, the sell-in and sell-out numbers were closing in. So can we conclude that the, let's say, inventory issue has been corrected already in Q1 and that for Q2, we should expect a normal market again?

Yes. We indeed have seen that we already see a convergence of sell-in and sell-out. And I also mentioned that I expect the second quarter growth in consumer.

Now to give you a bit more flavor of what happened in the first quarter. So we saw 2 main drivers behind the volume drop. Firstly, the retailer, we just saw inventory adjustments downwards. And of course, we track sell-in and sell-out, and we try then to reconcile the inventory levels. So we saw some lowering of inventory from -- with our main retailers.

And the second effect is that we had commercial negotiations with some major online retailers. And these commercial negotiations took longer than concluded. And that we've also felt in terms of selling to those retailers. And that is very much a temporary effect that I expect will be fully corrected and actually going now where we are in April, we already see that correction taking place.

The next question comes from Chase Coughlan from Van Lanschot Kempen.

Just to go back to something you mentioned about the indoor projects within professional. So I recognize the public was a bit softer, but you said indoor was doing quite well. Is there any risk you see maybe going into the second half around the potential for either higher for longer rates or rate hikes, would that have an impact on that indoor side of the business, do you think?

Well, I'm now 7 or 8 months in, and I find it quite difficult to predict the market in the medium and long term. So second half, let's see what happens. For the second quarter, that's a bit nearer. We are pretty positive about our order book. So not immediate, but what happens in the third or fourth quarter with all the uncertainty in the world, I think we'll be -- I want to be careful giving any firm guidance on that.

Yes. Okay. Understood. And then maybe just one follow-up around the free cash flow number. So the strong free cash flow. Of course, as you flagged, that was primarily working capital driven. These -- yes, this working capital swing, is that really a very structural change in the business? Or is this something you would maybe expect to revert somewhat going throughout the year? Or how should I -- how should we read that?

Yes. Thank you. Indeed, as you pointed, I think the strength and the strengthening of the working capital, I think this is a key focus area, right, as we have mentioned and communicated also in previous quarters, a lot of focus, in particular, on the inventory optimization, where we do see structural opportunities forward.

So I think this is I think encouraging signs that we've seen over the last few quarters that are translating into the strengthening of our working capital performance. So I think we are clearly driving towards what we believe is an opportunity forward to structurally improve compared to the level we have.

So I would say that Q1 performance in many ways is just one step and one milestone in the directional trajectory of structural improvement that we are driving as one of our performance step-up priorities that has been also mentioned earlier is supply chain excellence. We are putting a lot of effort in that area, and that will translate and already starts to translate into our working capital improvement.

The next question comes from Martin [indiscernible] from [indiscernible].

It's Martin [indiscernible] from [indiscernible]. Question around your reduction program. You set aside you took a EUR 63 million restructuring charge, most of it to be used to execute this program. Does this amount cover the whole program? If not, how much? And of this EUR 63 million charge, do you expect the cash out of that amount in the current fiscal year?

And attached to this theme, this program targets 900 roles across the organization. In Q1, the number of FTEs declined by 600. How much of that amount can be related to this reduction program?

Thank you for your question. So I'll try to break it down. So first of all, briefly updating on the status of implementation of our cost reduction program. So we are well on track in the execution with a very, of course, very clear and detailed road map across the whole organization for the implementation. The provision that were booked are linked to that.

So to your question on the -- perhaps looking at it for the full year because we have in our restructuring cash out for the full year, we have, of course, what is linked to that specific cost reduction program, but also other element linked to the adaptation of our conventional business, where we have every year also substantial restructuring cash out linked to that.

So if we combine all the elements, we do expect that the cash out linked to restructuring this year will be around EUR 50 million higher than what it was last year, and that's fully reflected in the confirmation of our free cash flow guidance for the year. So to your question for the cost resizing program, most of the cash out is expected indeed to be done in the financial year 2026.

Now on the FTEs, I think the only point of caution is when you look at the total headcount for Signify, which also includes all the direct labor linked to our manufacturing. Of course, you have a high seasonality factor, so you cannot connect one-to-one, of course, the dynamic on the total headcount to the execution of the program.

But compared to the 1,900 role that we have mentioned for the full year, we are seeing the first part of the decrease already visible in the first quarter, but most of the impact is expected on the second half of the year. So it's really towards the second half of the year that we will see the translation to the cost reduction of towards the EUR 180 million annualized run rate that we have indicated as a gross savings. So we are well on track with that role now.

Our last question comes from Emanuele Sartori from Kepler Cheuvreux.

I just have a quick follow-up actually on the Professional business. I'm just trying to get some color on the margins. So the Professional had relatively well despite volume pressure. So I'm just trying to understand how sustainable is this if the volumes remain weak throughout the year? And do you expect the cost and price discipline to continue to help offset this weakness into Q2 and in the rest of the year as well?

Yes. I think we're pretty confident about our ability to keep that margin resilience, particularly on the profit side because there, the majority of our strength, of course, on the project side is less subject to that same price pressure. So we have some pricing power there.

And at the same time, we have, of course, scale and ability to optimize our sourcing. So I think if you bring that together, our sourcing and our pricing partner, we're pretty confident on the margin side and, particularly on the project side.

And with that, I will now turn the call back over to Thelke Gerdes for any final remarks.

Ladies and gentlemen, thank you very much for joining our earnings call today. If you have any additional questions, please do not hesitate to reach out to the Investor Relations team. Thank you, and enjoy the rest of your day.

Hello. Welcome to the Signify Fourth Quarter and Full Year 2025 Results Conference Call, hosted by As Tempelman, CEO; Zeljko Kosanovic, CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions]

I would now like to give the floor to Thelke Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's Fourth Quarter and Full Year 2025 Earnings Call. With me today are our CEO, As Tempelman, and our CFO, Zeljko Kosanovic.

During this call, As will discuss our full year 2025 results and business highlights. Zeljko will then walk you through the financial performance in more detail. As will then come back to discuss our fiscal year 2026 outlook and closing remarks. After the prepared remarks, we will be happy to take your questions. Our press release and presentation were published at 7:00 this morning on the Investor Relations website. A transcript of this call will be made available shortly after.

And with that, I would like to hand over to As.

Thank you, Thelke, and good morning, everyone, and thanks for joining us today. It's actually great to connect with all of you again in second earnings call, my second earnings call at Signify. Now 5 months in the role, I've learned a lot, and I feel that I've got a solid handle on the business, of course, really supported by great collaboration with the management team here at Signify. And I gained much more clarity about the business, the market dynamics we face and also the actions we need to take. And I want to express that I'm confident about the future and the strategy we're putting in place, and I'll come back to that a bit later in the call. But let me first comment on the full year results and the full year performance 2025.

We delivered what I qualify as a mixed performance, as we are navigating a very challenging market environment. It's marked by reduced demand, price pressures in select markets, weakness in trade channels, and of course, the ripple effect of trade tariffs. And despite all these headwinds, I mean, if you look through it, our business has shown good resilience. In Professional, we delivered growth in the U.S. in the fourth quarter, while Europe remained under pressure, and that's particularly true in the trade channel. And we see in countries where we have large positions, like Germany, France and the Netherlands, that demand is sluggish.

Our Consumer business grew in 2025 with momentum remaining strong across all the regions with the exception of China. We saw continuous growth -- strong growth in connected and specialty lightings, and that now -- that part now represents about 36% of our sales. And this strength of that connected and specialty lighting was really visible across both the Consumer and the Professional businesses.

The OEM manufacturing business, on the other hand, has continued to experience reduced demand and persistent price pressures. And I'm pleased that we hold a solid gross margin, above 40%, and that was really supported by discipline on the cost side as well as price management across both the professional and the consumer business.

For the full year, we delivered adjusted EBITA margin of 8.9% and strong free cash flow of 7.6% of sales. And this strong free cash flow is really driven by working capital discipline, and that really underscores our resilience when it comes to cash generation.

Now, diving a bit into the respective businesses. Let me start with the Professional business. Comparable sales decreased by 1.4% as growth in the U.S. was offset by the weakness in Europe. And then, like I mentioned, particularly in the trade channel. The adjusted EBITA margin was decreased by 40 bps to 8.9%, mainly reflecting price and volume pressure in the European business.

Our teams did a great job at mitigating the direct effects of tariffs, which resulted into a kind of neutral impact on sales and profitability. And that's something we should be really proud of. That was achieved through effective supply chain and price management. And the -- while the direct effect of tariffs was contained, of course, we clearly felt the ripple effect in other parts of the world, particularly through production overcapacities in China and the resulting price pressure in parts of our business.

Now moving on to Consumer. Comparable sales increased by 1.4%, and this was driven by strong connected sales throughout the year. The adjusted margin decreased by 50 bps to 10.6%, mainly due to higher commercial investments, which we will discuss in more detail later on.

Moving to the OEM business. Comparable sales were down 16.5%, and we mentioned that before as a result of weak demand and intense price pressure and that we also there felt the structural overcapacity in the market. Throughout the year, the business was also impacted by lower orders, and we mentioned that before of 2 specific major customers of the OEM business. Adjusted EBITA decreased to 4.8%, reflecting the impact of lower volumes and continued gross margin pressure.

And then finally, wrapping up with the Conventional business. Comparable sales decreased by 23.1%, reflecting the structural decline of this business, and the adjusted EBITA margin decreased with 180 bps to 16.1%.

So all in all, a mixed results, difficult quarter, but where we showed strong cash generation and good resilience.

Now, let me move to showing you a few of the examples of what is -- how actually our business then works out in real life. With the professional business in Europe, while that business remained under pressure, our Connected business in the region continued to grow. And we had a recent project we completed in Madrid. And that this is a great example of this momentum, showcasing how connected outdoor lighting can completely transform what is a truly iconic landmark.

And we carried out a full architectural lighting renewal of Teatro Real, some of you might know it, reworking both the exterior as well as the ornamental lighting. And the goal was to enhance the theater's presence in the city at night while fully respecting and preserving, of course, its nice historic character.

And beyond aesthetics, the impact on energy efficiency is significant. We achieved over 40% savings, and that is kind of equaling 2 tons of CO2 avoided every year. And this installation is fully connected through our Interact platform, and this allowed cloud-based control, monitoring, and enables dynamic lighting scenes that can be adapted to different cultural events. So really great project that supports Teatro Real's net zero ambitions while combining sustainability, digital innovation and a richer visitor experience. So really cool example.

And then on the Consumer side, I wanted to highlight a -- the Hue business. We'll focus on Philips Hue on this slide. Following a very successful new product launches in September, we delivered a very strong commercial execution in the fourth quarter, building on the momentum we have seen throughout the year, great momentum on Hue. During Black Friday and Cyber Monday, we exceeded expectations in both North America and Europe. And that also underscores the strength of the brand and our execution during these key commercial moments.

And given our focused investments in Hue's social media presence, we saw a significant brand -- increase in the brand engagement in the fourth quarter as well with the social views -- media views rising more than 100-fold on a year-on-year basis. So we're really stepping up online.

And we further invested in the Hue app. As a result, in-app sales also grew by more than 50%, reinforcing the strength of that connected system, and it also is a clear signal of its long-term value potential.

And then finally, on Hue, we launched the Hue Essential range. That was a key step in making Hue more accessible to new customers by offering them a lower price entry point into the ecosystem. And this also successfully drove new customer acquisition. So once customers enter the Hue ecosystem, they typically continue to add products. So it's a real strong platform play.

Moving on to our Brighter Lives and Better World program. That is now completed. The program ran until the end of '25, and we will be introducing an updated sustainability program later in this quarter. And that is really designed to further align our sustainability ambitions with our strategic business objectives and long-term value creation. So actually good for sustainability and good for business.

In the final quarter of the 2025 program, we delivered following results. First, on the climate actions. We surpassed our targets, reducing greenhouse gas emissions across the entire value chain with 40% versus the 2019 baseline. And this is all SBTi-driven targets. Minus 40% was actually a target that was set by the Paris Agreement by 2031. So we got there much, much faster, and it's something we are very proud of.

Secondly, on circularity, circular revenues reached 37% of sales, well ahead of the target of 32%. And then thirdly, we have our Brighter Lives revenue, so that relates to portfolio -- our product portfolio that benefits beyond lighting society. And you have to think about food availability, safety, security, health and well-being. And the Brighter Lives revenues reached 34% of sales, again, exceeding our targets.

We have one red on the slide that is on diversity and inclusion. The percentage of women in leadership stood at 27%, which means we did not meet the target of 34%. And this is an area where we have -- progress has been slower. I want to highlight that we remain fully committed to improving the representation through focused diversity hiring, retention, but also attrition. We try to reduce attrition on the diversity side.

With that, let me hand it to Zeljko.

Thank you, As, and good morning, everyone. Let me begin with an overview of our fourth quarter performance on Slide 10. Starting with our Connected installed base. This continues to grow strongly, reaching 167 million connected light points at year-end.

Turning to sales. Nominal sales declined by 9.9% to EUR 1.49 billion, mainly due to a negative currency impact of 4.7%, largely driven by the weaker U.S. dollar. On a comparable basis, sales declined by 5.2%, reflecting continued weakness in OEM, Professional Europe and the China Consumer business, and this was partially offset by ongoing growth in the other markets such as the U.S. and India. Excluding the Conventional business, the comparable sales decline was 4.2%.

The gross margin was impacted by temporarily higher manufacturing costs in Conventional and OEM, while indirect costs increased as a percentage of sales due to lower volumes. On profitability, the adjusted EBITA margin declined to 10%. This was mainly driven by a lower contribution from the Consumer business as well as OEM and Conventional businesses as well as lower results in other.

Overall, the dynamics and the drivers of our EBITA margin are well understood. Beyond the structural pressures we are targeting through our cost reduction program, the margin also reflects targeted commercial investments and other short-term factors.

Finally, we delivered a strong cash flow generation of EUR 291 million, underscoring the resilience of our cash conversion and the effectiveness of our working capital management actions.

Moving now on to the fourth quarter performance of the Professional business on Slide 11. Comparable sales in Q4 declined by 1.9%. This reflects a mixed regional performance as growth in the U.S. was more than offset by weakness in Europe and emerging markets, particularly in the trade channels, where demand remained under pressure.

From a margin perspective, we maintained a solid gross margin, as we successfully compensated the effect of price erosion and tariffs with price increases and a bill of material savings. The adjusted EBITA margin declined by 40 basis points to 10.4%, mainly due to lower fixed cost absorption.

Moving on to the Consumer business on Slide 12. Comparable sales declined by 2.7%, driven primarily by a significant weaker performance in China, where the consumer environment remains subdued and also Klite, our export business. At the same time, our connected home portfolio delivered a strong finish to the year. The adjusted EBITA margin declined by 330 basis points to 14.1% against a high base of 17.4% last year. This development reflects the higher investments and commercial activation behind our connected home products during the peak events.

While these targeted actions temporarily weigh on the margin, they helped us drive momentum in a strategic growth category and are expected to support long-term customer acquisition. Importantly, the connected portfolio remained margin accretive to both the Consumer business and Signify overall in Q4 and also for the full year.

Moving on now to the OEM performance on Slide 13. Comparable sales declined by 19.2%, reflecting very challenging market conditions in the Component business. Demand remained weak, and the business continued to face intense price competition. As a result, the decline in the adjusted EBITA margin to 1.5% primarily reflects a gross margin reduction caused by lower volumes and ongoing price pressure.

The impact of lower orders from 2 customers was no longer material in Q4 compared to prior quarters and will roll off going forward. However, the market remains very challenging due to low demand and oversupplies, leading to price pressure in the market.

And finally, the Conventional business on Slide 15 (sic) [ Slide 14 ]. Comparable sales declined by 19.6%, reflecting the continued structural decline of the Conventional business. Profitability was impacted by 2 transitory effects rather than a change in the underlying economics of the business. The first is the impact of the site rationalization and site transition, which temporarily increased costs and disrupted production efficiency. This effect is expected to normalize in the second half of 2026. The second effect is a short-term lag in the price realization following the implementation of tariffs, meaning cost increase were not yet fully passed through to customers.

Moving on now to our adjusted EBITA bridge for the fourth quarter on Slide 15. Our adjusted EBITA margin decreased by 240 basis points from 12.4% to 10% in quarter 4. The volume decline impacted the adjusted EBITA margin by a negative 100 basis points. Price and mix had a combined effect of minus 200 basis points. Within this, the effect of price erosion has remained stable or slightly improving. As mentioned, we see higher effects of price erosion in some parts of the business, such as OEM and Professional Europe, but on the other hand, positive pricing in the U.S. Mix was a positive contributor, mainly to higher -- mainly due to higher connected sales.

Cost of goods sold had an overall negative contribution of 50 basis points this quarter, driven by 3 main factors. First, we continue to deliver bill of material savings across all businesses. Second, the manufacturing productivity was impacted in OEM by the significant volume decline and in Conventional by temporarily higher manufacturing costs related to the site rationalization.

And finally, COGS will also include the effect of incremental tariffs, which were mitigated through pricing action, and therefore, neutral at the gross margin level. Indirect costs improved by 40 basis points on adjusted EBITA margin level. Currency had a positive effect of 40 basis points. And finally, other had a small negative effect of 10 basis points.

Turning to the working capital bridge on Slide 16. Compared to the end of 2024, our working capital decreased by EUR 93 million or by 120 basis points from 6.9% to 5.7% of sales. Within working capital, we saw the following developments: inventory decreased by EUR 106 million, receivable reduced by EUR 170 million, payables were EUR 225 million lower. Finally, other working capital items reduced by EUR 42 million. Thanks to disciplined execution, we brought working capital back into the mid-single-digit range by year-end, a solid improvement that contributed to our strong cash flow generation.

I would like to share now an update on our capital allocation plans. First of all, the priorities within our capital allocation policy remain unchanged. We aim to maintain a robust capital structure and maintain an investment-grade credit rating to pay an increasing annual cash dividend per share year-on-year to continue to invest in organic and inorganic growth opportunities in line with our strategic priorities, and finally, to provide additional capital return to shareholders with residual available cash.

In 2025, we paid a dividend of EUR 1.56 per share, representing a total cash dividend of EUR 195 million and a payout of 52% of continuing net income. We also repurchased shares for a total consideration of EUR 150 million and canceled 5.8 million shares. In 2026, we are proposing a dividend of EUR 1.57 per share, representing a total cash dividend of EUR 188 million and a payout of 61% of continuing net income.

While our policy continues to include returning excess capital to shareholders, we will pause share buybacks for capital reduction purposes. This allows us to prioritize a robust capital structure while our portfolio and strategy review is underway. Once the review is complete, we will reassess the pace and scope of further capital returns under our existing framework. We aim to provide an update at the Capital Markets Day in June 2026.

And with that, I will now hand back to As.

Thank you, Zeljko. You covered a lot. You mentioned the strategy review. So let me update you a bit about the priorities as I see and what we have been doing in that space. There's 2 things really important -- I mean, on the strategy. Firstly is to outperform in what is a very tough market. That's kind of the near-term part of the strategy. And then, the second priority is to define a clear path to durable growth, and that includes a portfolio review.

So let me comment on both. Starting with the first priority, outperforming in a tough market. We are now taking very concrete actions. We are stepping up operational excellence across sales, marketing, supply chain and IT with a clear focus on managing price pressure, improving efficiency and also strengthening the company consistently in its performance. So it's really a performance step-up.

On the supply chain side, we already brought the inventory down, but there's more to go after. We want to lower transportation costs and also deliver our performance to customers with reliability. But in addition to these 3 items around focused marketing and sales investment, supply chain and IT, also, it is absolutely crucial that we keep our cost discipline and our cost base competitive. And therefore, we announced this morning a EUR 180 million cost reduction program. And the majority of the savings will be delivered throughout 2026 with the full benefit realized in '27. So we have to make sure we get to the right cost run rate in the fourth quarter.

Now, let me briefly explain the aim of this program. First, of course, like I said, we need to ensure we maintain a competitive cost base and achieve that cost leadership while we rescale our cost structure to match today's sales levels. And we will fully leverage the operating model that we introduced 2 years ago by driving productivity and simplification across our business. So we stay with that operating model. It was the right thing to do, my predecessors put it in place. It was the right thing to do, much more customer-oriented, and we can now deliver the efficiencies and the productivity improvements within that operating model.

So we are building on the strong cost discipline already present in the company, while we deliver the cost saving and increase our competitiveness. The program will unfortunately impact 900 roles worldwide. And of course, this is very painful when it affects people, and we need to manage that very carefully and with full respect for our colleagues.

The second priority, I mentioned, is defining a clear path to durable growth. We are making good progress on the strategy and the portfolio review. And I would like to emphasize that I'm confident about the choices we will be making to focus the company and to grow value in the future. We are really -- we'll provide clarity at the Capital Markets Day in June about where do we want to invest and grow and what are the parts of the business that we see more for harvesting or divestment. This will be completed in the coming month.

And like I said, 23rd of June Capital Markets Day is planned. On that day, we also intend to provide a clear update on our capital allocation strategy, linking our portfolios directly to value creation. So that's on the strategy.

Now finally, I would like to discuss the elements of our guidance for 2026, and that is here on the slide now. You might have read that we are not providing guidance on comparable sales growth, and let me explain why we don't do that. We had a really good look, and we continue to see a huge divergence in dynamics across our markets globally and actually across the different parts of our portfolio. And combined with this is, of course, the ongoing uncertainty in the macro environment.

And in this context, providing a very wide guidance range would, in our view, not be meaningful. So we thought we better than -- not provide guidance. That said, of course, I can comment on what our expectations are. We expect continued resilience in the U.S. We expect our OEM and professional business to remain challenging, so more of the same. At the same time, our Consumer business is expected to maintain its momentum, supported by the strength of our connected portfolio.

Regarding the profitability, we expect an adjusted EBITA margin in the range of 7.5% to 8.5%. We are anticipating a soft start of the year and near-term view with headwinds that we experienced in Q4 to persist in the first half of this year. And of course, this will continue to weigh on the margins in the first half and the challenges we have then on the cost under absorption. For the second half of the year and onwards, the actions we are taking on costs are expected to start providing upsides.

And finally, the free cash flow generation is expected in the range of 6.5% to 7.5%, so supported by that strong cash conversion that we have and the continued capital discipline.

So with this, I would like to hand it back to the operator and start the Q&A session.

[Operator Instructions] The first question comes from Goldman Sachs.

Daniela from Goldman Sachs. I just wanted to ask how have the market shares by division trended recently? Yes.

Thank you for the question. Market share is always a bit lagging because you asked about it recently. So typically, we have actuals for the quarter. The market data follows the quarter. So there's a bit of a lag effect. What we mentioned on the -- before on the results in Europe, the market has been a bit sluggish. But a lot of the revenue decline also is driven by lower prices. So when it comes to volumes, we feel that we are keeping or maybe even growing market share in many of the segments when it comes to projects. And then probably where there is the trade channel is where we see the steeper decline, and we probably lose some market share there. In the U.S., it's pretty stable. Yes, I think it will be the short answer what we know now.

That said, I mean, maybe just to highlight on the Consumer and the Connected side, I think that's where we are actually -- we spoke about the momentum, and the comments I just shared were more on the Professional business. On the Consumer, we are building momentum. And in the Connected space, we're clearly gaining market share. So that's positive.

The next question comes from Max Yates from Morgan Stanley.

I maybe had just sort of 3 quick questions. Just firstly, on the Chinese competition, could you maybe give us a feel for kind of what kind of pricing you're seeing from those Chinese competitors? And I don't know whether you have any kind of good feel on the level of imports that are coming into Europe now as a result of obviously tariffs in the U.S. So maybe any feel of, yes, how the level of pricing is versus those competitors and the level of imports, if you have any kind of knowledge of that?

Yes. Let me say a few things, and maybe, Zeljko, you can add to it. I mean, there's China in China and then there's China for the world. So within China, I think we saw growth in our professional business, where I think we have really outperformed market. So that's positive. On the consumer market in China, we saw quite a steep decline in the fourth quarter. And you see that the consumer demand in China is very dependent also on the subsidies provided. So absent subsidy, we saw quite a bit of decline. That weakness is not just in lighting, that is beyond in the broader consumer space.

When it comes to exports, basically, the dynamic in China is such that there's overcapacity in the market. And of course, a lot of the LED is produced in China. Also to deal with some of the challenges around tariffs, we see Chinese suppliers building additional capacity in the East, but outside of China. So, therefore, the overcapacity is only increasing. And that, of course, results into price pressure. We see that in ASEAN. We also see that in Europe, particularly in the trade channels, the more commoditized part of the portfolio.

On the positive side, on the Prof side and the project side and the connected lighting, that is a lot less impactful. And there, of course, we also retain our strong margins. Quarter-to-quarter, we don't see it worsening a lot. So it's pretty stable now. Has it bottomed out? Well, too early to tell, I guess, but we don't see a rapid further decline in that sense.

Zeljko, is that -- do you want to add anything to that?

No. I was going to confirm, indeed, if you look at the sequential, the drivers of price pressure that were there, especially in the non-connected and in the over-the-counter parts of our business, have been amplified indeed by the ripple effect of the tariffs. Having said that, the price pressure remains very, very strong in OEM, in Professional Europe. But at the same time, we've seen a positive dynamic in price in U.S. and also in the Conventional businesses. So I think overall, from a gross margin management perspective, that's very important because we do manage as a whole, and we've been able to extract and continue to extract strong bit of material savings to match the reality of those price pressures.

Okay. And maybe just the second question, as maybe just on sort of the strategy, I know you're going through the strategy update. But obviously, the results show kind of quite a sort of difficult environment. So I guess some of the shareholders will be very keen to understand any initial takes. I hear you talk kind of quite a lot about getting growth back in the business. Any initial views on kind of how you do that? Will that require investment? Is that new product momentum? I realize we'll get a kind of full picture later this year, but maybe just any initial takes on sort of what direction you may take? And how you plan to sort of tackle the growth challenges, which the business is having?

Yes. No -- I mean, like I said, I feel increasingly confident that we'll make the right choices and focus the company. And of course, focusing on where the growth is. So that is with -- we are really going quite granular on how do we expose our portfolio to growth and how do we then challenge our marketing and sales investments to those areas where we do see the growth. And so we look at where we can win in terms of geographies, in terms of value chain, but within the Prof and Consumer business also very much at the segment level and product market's combinations where we see the growth. So that's what we're currently working towards.

And that will then ultimately result into, hey, these are the areas where we want to focus less. This is where we want to focus more. This is where we want to invest and grow, and this is what we want to harvest or consider for divestments. And I'm confident that in June, we can give you that full picture of what that results into. And I'm quite excited about the plan that we are piecing together.

Okay. And maybe just the final one, and it kind of comes back to that growth. Obviously, you didn't do another share repurchase while you're doing the strategy review, but you did keep the dividend at last year's level. And obviously, that's quite a high level relative to your cash conversion. Do you think that's appropriate? And is that sort of consistent with what you need to do in terms of getting kind of growth back into the business and the investments that you'll have to make?

Maybe just -- thank you for your question. I think first, what's important to -- that our capital allocation policy remains unchanged, and it's all about balancing growth, shareholder returns and financial strength. So maintaining a robust capital structure, of course, is very important. Now, while the returning excess capital remains part, and that's still a part of our capital allocation framework, we will pause beyond the first tranche that we have successfully implemented in 2025. And this is really to allow to sustain and maintain financial strength, balance sheet strength while keeping the flexibility. So it's really keeping the strategic flexibility as we are going through the strategic review and portfolio review that As was commenting upon. So we will reassess the timing, and that's one of the key elements, of course, that we will give full clarity upon during our Capital Markets Day in June.

The next question comes from Sven Weier from UBS.

The first one is on the cost saving program. A few follow-ups there. I was just wondering because you said you have to unfortunately lay off 900 employees. But in total, you're seeing EUR 180 million of cost savings. So that sounds quite high relative to the number of headcount. So I was just wondering what else is in the cost savings here? And you just had a EUR 200 million program 2 years ago. So I was also wondering, you're now cutting quite a lot here again. Does that not automatically enforce also getting out of certain businesses because your basis becomes quite a bit lower? That's the first one.

Yes. Thank you, Sven. Thanks for your question. So just as a clarification, I think, as you rightly pointed, we did go through a substantial cost resizing program a few years ago, but this is different. And the main important difference is that we are implementing that, as mentioned earlier, leveraging and fully leveraging our operating model. So the cost reduction program has different elements, and this is really going into all the layers of -- in particular, of our SG&A, R&D and on a business per business level. So there's a lot of granularity in the way we drive that.

Of course, a big portion of that is relating to headcount, but not only. So there are different levels of optimization that we are also implementing, which are behind, and that is being, of course, underpinned at a very, very detailed level. So I can't give you the -- all the detailed breakdown of that. But to your point, I think there are different elements, including headcount resources redeployment, but also many other efficiency measures that we are implementing.

Yes. And Sven, to add to what Zeljko is saying is that I see cost discipline and cost management in our industry as absolute critical to stay competitive. And therefore, it should be a continuous effort, right? And it's business as usual to drive productivity up, right? And of course, also with automation and applications of AI, I think in the future, we can continue doing that. This is, however, a reset that is now required with the new operating model in place. We can make this step change without harming the business. And then, from there on, it should be much more of a continuous effort.

And does that already preclude kind of what you do in June? Or could there be another round of major cost savings announced then after June?

Sven, the current program is -- as a basis of the current program is the current portfolio. So of course, if we take decisive action on the portfolio, we will then again assess what is the appropriate cost base.

And then maybe finally, I just wonder, because if I take the guidance and you don't give a top line guidance, obviously, but let's, for the sake of the calculation, assume flat revenues and you take the midpoint of the margin target, that kind of implies already mid-double-digit EBIT decline. But on the other hand, you say the majority of the cost savings are going to be in 2026 already. So -- I mean, what's really happening on underlying business then because that sounds quite extreme in terms of what you're losing in terms of earnings? Are you assuming such steep revenue declines, price pressure or -- because as you can see that when you do the bridge, it sounds pretty drastical?

So maybe, Sven, to give a bit of perspective on what's behind the guidance more as a dynamic of the main building bricks in our profitability, I think first, and that's important, as we've been able to sustain in 2025, gross margin resilience and robustness. So this is still something that we are driving and aiming to continue to drive, which is built in. Now, what we see in terms of the dynamic is we do anticipate a soft start of the year from a top line perspective with the headwinds that we've commented upon and that we experienced in Q4 that are expected to persist into the first half, and that will continue to weigh on margins in H1 just due to the fixed cost under absorption.

Now, at the same time, as we are implementing and putting in place and putting in motion, now in execution, the cost resizing actions that will take -- which benefits will be more captured in the second half of the year. That will help to, of course, rebuild the strength of the bottom part of the P&L, and that's what is behind, let's say, included in the guidance or in the expectation on the EBITA margin.

And as mentioned earlier, this is in the context of very diverse dynamics in the different businesses from the top line perspective. So these are the elements that we are -- that are to be understood in the evolution of our operating margin throughout 2026.

Are you assuming, again, 2/3 of the savings this year like in the last program?

It's more back-end loaded. I think here, the aim is -- and of course, different impacts in different geographies and different businesses depending on the phasing. So it's mostly going to be as back-end loaded, a little bit different, as I said, from the previous program because the previous program was doing an organizational change at the same time as implementing cost resizing. Here, it's really the implementation within and leveraging the same operating model. So there's a different pace of capture in the different businesses.

Obviously, in businesses like OEM, where we are facing, I think, action, have already been put in motion. So there, we expect to have much faster implication and much faster capture. So it's going to be a diverse pace of realization of the savings across the different businesses. But mostly in general and overall for Signify, mostly back-end loaded towards the fourth quarter of the year. The key thing, that's what As mentioned, we want to reset and resize to the reality of our revenue to make sure that we enter -- end '26 and entering into 2027 back to the right level of competitiveness of our cost base.

Yes. Thank you, Zeljko. And we know -- yes, I was very impressed actually with the ability of Signify to pull off such a program at the -- in a very short window. So I think very impressive. We know how to do this. That said, I mean, about 25% of the savings will be in countries where there is a consultation process. So of course, with all the respect for the people and the colleagues, we will carefully also work this in consultation with our staff councils, and that takes a bit of time.

The next question comes from Akash Gupta from JPMorgan.

It's Jeremy asking on Akash's behalf. I just have one quick follow-up on the Asian competition topic. Maybe could you elaborate a bit? I'm wondering, are we talking about 1 or 2 competitors here that are showing aggressive pricing? Or are there more than a couple? And also just wondering how do those players compare to Signify in terms of size in their comparable businesses?

Maybe -- yes, thank you for your question. I think what's important to remind is that if you look at the -- let's say, the non-connected landscape of our business, if you only look at the number, and this is public information, but always important element to have in mind, is we have over 15,000 registered LED companies in China. So it's very, very scattered. So you have a lot of intensity, which is very fragmented. And the level of fragmentation is particularly high in Europe, in particular in the Professional business. So in short, the price intensity that we see is, of course, across a very, very wide and fragmented landscape.

Now, having said that, as soon as we move more into the Connected space, which is much more concentrated, then we have a totally different landscape of price competition dynamics. So this is -- but this is a reality that has been there, by the way, for several years that continues to be the case and which has been amplified, as mentioned earlier, with the ripple effect of the tariffs.

Yes. And to your question, Jeremy, is it 1 or 2? It's multiple. I mean, you see a lot of these Chinese manufacturers that sit on an overcapacity of 30% to 50% of underutilization of their plants. So of course, that translates itself into lower prices. We benefit from that on our sourcing side. So that's the upside of it. But of course, on the lower end in the trade channels, you see these Chinese products under different brands coming to the market.

The next question comes from Martin Wilkie from Citi.

It's Martin from Citi. Just a question in terms of what we can expect at the Capital Markets Day in terms of timing of any actions you might take? I mean, I guess you've obviously included disposals as one potential action at the CMD. But we know in the past, some of these assets are not necessarily having huge numbers of potential buyers. I don't want to obviously preempt what you might say, but if we think of the Conventional business, it's probably not obvious that there are lots and lots of buyers for that. Will your review include sort of how quickly you could take these actions? And so can we see that sort of level of detail at CMD? Or just to understand how quickly whatever you might announce in June then be implemented, just to understand sort of how quickly the portfolio might change?

Yes. Good question. Well, we won't be sitting still until Capital Markets Day, so where we believe we have good actions to take, we will, of course, already start that. And the doability of our choices is an integrated part of the choice itself, right? So it's not that we are dreaming on all sorts of desired states not executable. So it's really -- that plan should be really anchored into realism. And we are actively engaging also, hey, if there's value and if it comes to harvesting or divestment, is that value best delivered within Signify or by others or with others. So that's all in scope of what we look at. So the short answer is, no, that is already kind of in motion, and we will update you in June about where we stand. I don't see June necessarily as a starting point. And so we are taking a decisive action and try to move quite swiftly.

That's great. And if I could just have an unrelated question just on how we think about the profit for next year. Am I right in thinking that the EUR 180 million all falls within the OpEx line? And so any savings that you have in COGS to offset price and these kind of things to protect gross margin is distinct from that, and therefore, this EUR 180 million is all inside OpEx?

Yes, you're right, Martin. I think the cost is mostly our nonmanufacturing cost base optimization for all the other cost of goods sold, as we've mentioned, and we'll continue to do that. I think there, we are driving and exercising cost leadership and leveraging scale, of course, to the largest extent we can, but the cost reduction program that has been mentioned of EUR 180 million is non-manufacturing cost related.

The next question comes from Chase Coughlan from Van Lanschot Kempen.

I just have 2. Maybe starting off with the U.S. market. I think you flagged that it's, of course, still growing in the fourth quarter. You said that 2026 expectations are for a resilient market in the U.S. I think it's a little bit, let's say, against the grain as to what I've heard elsewhere in the market from building materials or construction players. And I'm just curious on what's giving you that confidence in a resilient U.S. market for '26.

Okay. While we see the U.S., we expect flat to moderate growth, Chase, and the expected increase in the bit of public spending also is supported by the recent bills. The residential market, I expect will remain soft. So I think when you say, I see more bearish fuse, then it's probably more related to the resi construction. Yes. We -- yes, so kind of flattish markets, low-digit growth potentially. On the consumer side, however, there, we are more optimistic, and we think we can keep the momentum and keep growing the business, particularly on the Connected side.

Okay. Great. That's very helpful. And then, my second question on China, so you've flagged that, of course, you're seeing some inflows there for several macroeconomic reasons and particularly in the commoditized sort of range that you offer. I'm just curious on, especially given the 5-year plan in China now, it seems that they're focusing a bit more on connected lighting systems as well being manufactured domestically. Do you see, let's say, a midterm risk that over time, yes, maybe the Chinese products in flowing into Europe are not just limited to this commoditized range? Or how might you protect against that?

Well, what I can say is what we've seen so far. And there, I think we feel quite confident that we have a very strong competitive edge in that connected market, and we see no signals of that changing. I mean, we'll see how the market responds to offerings by others. But so far, I have no reason to believe that, that is where the Chinese commoditization will go. It's very much focused on manufacturing excellence on the hardware side. Yes.

The following question comes from Marc Hesselink from ING.

Yes. First question is on your free cash flow guidance. If you look at the -- let's call it, the drop in the adjusted EBITA margin and then compare it to the free cash flow drop as a percentage of revenue, it is a bit better. I think you also started -- ended the year with very good working capital, good free flow of that. Do you expect more of those working capital improvements to support the free cash flow a bit?

Marc, yes, the short answer is yes, definitely. As we've indicated in previous communication, I think working capital improvement in particular through inventory optimization, and that goes hand-in-hand with the supply chain excellence focus that As was commenting upon, is an important driver to our structural cash generation improvement. So that's an element that indeed is taken into account on driving the continued dynamic of strong cash generation in '26.

Okay. Second question is on your Conventional business. I think historically, you had -- did a very good job managing down that Conventional business and also protecting the margin in that process with the footprint rationalization. And now, you see actually quite a big hit on your margin. Did those dynamics that you can run down that business, did that materially change that it now is different?

So actually, there are 2 elements. And so the answer is no. I think we do have -- and that's what we expect to normalize back to the entitlement of the teens' level of operating margin for that business in the context of continued decline. Two transitory elements that indeed weigh in the EBITA margin over the last 2 quarters, one, which is related to manufacturing process transition because as we are scaling down and adapting proactively that business, where we do a lot of site transition and manufacturing process in that context, can be impacted. So this is what we've seen a temporary increase of our manufacturing costs in the transition, and this is something we do expect to normalize by end of Q2, so into H2 back to normal.

And then the second one, which was a little bit more specific to Q4, where we had the delayed effect of tariff cost increase, which are being mitigated through price. So the price-through had a bit of a lag effect compared to the cost impact in Q4, which will be normalized already in the first quarter. So 2 transitory elements that are impacting in what you see, but no change vis-a-vis our ability to bring the profitability again to the levels of entitlement of teens profitability that we had indicated earlier. So it's a transitory impact of a few quarters.

Okay. That's clear. And another bit smaller question is on the other division. You mentioned that you had less revenue from your ventures business. But then, it's quite a big hit on your profitability, almost EUR 10 million difference. I mean, that seems a bit big for a ventures business. But can you explain the dynamic? And if that's true, what does that mean for the coming quarters? Is this something where you will have quite significant higher cost than what you had in the previous quarters of '25?

Yes. So look, first of all, and as the scope of what is reported in the other, so you have indeed the profitability of our central ventures. So you do have also other global costs, right, which are reported there. So I think the main impact, indeed, as you highlighted, is the effect of indeed a much lower sales volume in the ventures, and that impacted directly to the bottom line, which is -- one of them is also exposed to the dynamics of the consumer market in China, in particular, so this one.

And it's good to remind that we had actually a comparison base that was very high in Q4 last year because this was a business that really had a very strong growth and strong dynamics. So we have a bit of a double whammy kind of comparison base effect. So it's transitory by nature, and this is the nature of those venture businesses, which are reported under other. But the other segment is not only venture P&L, just as a reminder. It includes also other global costs.

Okay. So what would then be like a normal level that you would have without these temporary effects?

Yes. Look, I cannot disclose a specific guidance on the other. But I think what we've seen in Q4, I think we expect in the coming quarter to go back to kind of normalized level that we saw in the previous quarter. So there's a bit of volatility in the venture business. So I can't give you a precise guidance on that, but we do not expect coming quarters to be as low as what we saw in Q4 in terms of revenue for the ventures.

The next question comes from Adam Parr from Rothschild & Co Redburn.

Just a question on CapEx, please. Could you just share a little bit more detail? It appears to have jumped to 2.7% in the fourth quarter versus the 2022 to 2024 range of about 1.7% of sales. Just wanted to ask what's been driving this increase? And what do you see as a sort of more normal level in 2026 and 2027?

Yes. Look, in the CapEx line, so you have different elements. So the -- if you compare on the quarter-to-quarter or year-on-year, quarter-on-quarter basis, I think you may have a different dynamic. So typically you have 3 things. You have the tangible CapEx, which is, in general, quite stable. So no real volatility there. Then, we also had the effect of real estate transactions, so that impacted differently this year compared to the previous year. And then, we have also intangible CapEx, which are more related to product development to IT project capitalization. So different dynamics. But overall, I would say, as a percentage of sales, I think we should not expect any significant change of the level.

I think our business has a very low CapEx intensity in general, and that will remain so. So a bit more volatility when you compare it on the quarter versus quarter because of those 3 buckets or 3 building bricks that have different dynamics.

Okay. Maybe I could just follow up. And when you say capitalizing sort of cost of product development, can we assume that's mostly connected there?

It is indeed.

The last question comes from Wim Gille from ABN AMRO-ODDO BHF.

I hope you can hear me. First question is on the, let's say, comments that you made around the consumer business. When you were looking into 2026, you mentioned you expect to keep momentum in Consumer. However, if I look at the comparable sales growth for the fourth quarter, it was actually quite weak. So what did you actually mean with that comment? So should we look at the comparable sales growth in Consumer for the full year? Or what exactly did you imply with keeping the momentum in the consumer space?

And in relation to that, you mentioned specifically that the consumers in China have been weak. But if I read any other consumer company, the consumers in China have been absent since COVID. So they haven't done anything in the last couple of years. So do you actually see a material change here? And is that market-driven? Or is it more market share related, where you basically lose out against very desperate local producers there?

And my follow-up question would be a much more optimistic one, and it's around the growth verticals. If I hear you correct, connected lighting in growth vertical actually stands at around 36% of group sales for the year. That's up materially from 33% last year. So is my math correct that the growth verticals, including connected lighting actually grew in 2025 in the low to mid-single-digit range?

Thanks, Wim. And let me give it a go and maybe Zeljko wants to add. But indeed, for the consumer, I think if you have a reference point, the full year would be much more indicative of how we see the consumer business moving forward than the fourth quarter. We have great momentum. I think it's fair to say that we are confident about market, but we're also confident about gaining market share. And that is both on the Connected Hue range, but also on the luminaire side. We expect -- we see some real good growth opportunities, and that offsets a decline on the more commoditized and declining lamps business. So if you add the whole mix of consumer, we feel we can keep that growth momentum as we've seen for the full year last year, maybe more.

On China, that, like I said before, it's -- the demand in China, it has been sluggish, but it's also heavily imported by the support schemes put in place by the government. And you see that once these subsidies do come in that you see demand popping up quite quickly as well. So it's a bit volatile and unpredictable. So we'll need to see how that plays out. But indeed, a decline -- sharp decline we've seen in China consumer markets in Q4. We think that, that will continue to be challenging at least in the first quarter of this year.

On the growth of the verticals, you're quite right. I mean, we are very excited about the growth opportunities there. And we do see that growth that you spotted is indeed happening in '25. So that is -- I don't know what you said, low single digit. I think it's more higher single-digit growth that we see around Professional and Consumer. So we -- like Zeljko indicated, we will continue to invest in it. We also see that clearly as an area for future growth going forward.

And can you split the, let's say, penetration? So it's 36% on group level. Can you give us a broad indication where you are in Prof and where you are in Consumer?

Well, that is the level of granularity that we typically don't provide. What I can say, Wim, is that it is -- in both businesses, it's growing at a similar high rate. Yes. So high single digit, if not double digit in some areas.

Thank you. And with that, I will now hand the call back over to Thelke Gerdes for any closing remarks.

Ladies and gentlemen, thank you very much for joining our earnings call today. If you have any additional questions, please do not hesitate and reach out to us. Thank you very much, and enjoy the rest of your day.

Hello. Welcome to the Signify Third Quarter 2025 Results Conference Call hosted by As Tempelman, CEO; Zeljko Kosanovic, CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions]

I would now like to give the floor to Thelke Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's Earnings Call for the Third Quarter of 2025. With me today are As Tempelman, Signify's CEO; and Zeljko Kosanovic, Signify's CFO.

I would, first of all, like to welcome As to his first earnings call as Signify's new CEO. During this call, As will take you through the first -- the third quarter and business highlights. After that, he will hand over to Zeljko, who will present the company's financial and sustainability performance. Finally, As will return to discuss the outlook for the remainder of the year and share some first reflections and priorities. After that, we will be happy to take your questions.

Our press release and presentation were published at 7:00 this morning. Both documents are available for download from our Investor Relations website. The transcript of this conference call will be made available as soon as possible.

And with that, I will hand over to As.

Thank you, Thelke, and good morning, everyone, and thank you for joining us today. As Thelke said, this is my first earnings call in this role, and I look forward to this engagement with you this morning.

Now I joined the company six weeks ago at a time when the markets are indeed very challenging. So let's begin with some of the key market developments I have observed in my -- over the third quarter.

Firstly, we see the ripple effects of tariffs as Chinese overcapacity is redirected from the U.S. to Europe and other regions. And this is creating additional price pressure, especially in the professional trade channels in Europe and Asia, where competition has intensified.

Secondly, in our Professional business, we also see continued softness in important European countries, such as France, the Netherlands and the United Kingdom. And increasingly also in the U.S., where demand is slower or has been slower than expected in the third quarter. And this is especially the case for the public sector projects with government funding.

And thirdly, in our OEM business, we see further compression of demands and continued price pressure, particularly in Europe as well. And this has been, again, intensified by the increased imports of Chinese components putting pressure on the market for nonconnected.

However, I'm glad to say the market also presents opportunities that fit our strategy well. Our growth in connected and specialty lighting and particularly in consumer is very encouraging. The consumer business grew in all major markets and was particularly strong in India. And this strong performance of consumer was boosted by the expansion of our Hue portfolio, and I'll cover that in a bit more detail a little later.

Now overall, connected and specialty lightings grew by high single digits across both the professional and consumer businesses. And worth mentioning is also our agricultural lighting business that delivered a strong seasonal performance, helping to offset some of the weaker areas of the portfolio. So overall, if I would have to summarize, this quarter underlines the resilience and growth potential of our connected and specialty lighting and the price pressure on the more commoditized products in the traditional trade channel.

Now let me move to an example that illustrates how our connected solutions are creating value for our customers and wider communities. I mean despite the challenges in the European public sector, there are still great projects. And one of them is presented here. We just completed the street lighting project for the municipality of Montbartier in France. And the local municipality set out to modernize its public lighting with the goals of improving safety, enabling remote maintenance in a sustainable, cost-efficient way.

And by implementing our SunStay Pro solar luminaires that are fully integrated with our connected lighting managements and the Signify Interact platform. And this all-in-one solar powered solution allows the municipality to optimize luminaire run time, control the systems remotely and significantly reduce energy costs, while addressing environmental impacts. So it's a great example of how solar and connected technologies come together to support energy transition goals, while delivering meaningful benefits for customers and communities. And we hope to see a lot more of that going forward.

Let me move to the second example, second highlights. I talked about this earlier, the exciting new portfolio expansion that supported the strong third quarter performance of our consumer business. And I just installed the Philips Hue system myself, and I have to say, I've been super impressed by it. It's a really cool product. And Hue is truly the leading connected lighting system for the home, with a very strong brand and a loyal growing customer base.

And the launch in September exceeded our expectations, creating strong demands with excellent execution, including well-managed availability on our e-commerce sites. And among the new innovations was a new feature that transformed existing Hue lights into intelligent motion sensors that respond to movements. So really, this way, we continue to extend the role of Hue beyond illumination in our customers' home to integrating security, entertainment and intelligent lighting. And also worth mentioning, we introduced the new Essential range that introduces you to customers at a more accessible price point.

So these are some highlights. And with that, I'll hand it over to Zeljko, who will continue to cover the financial performance of the quarter. Zeljko?

Thank you As, and good morning, everyone. So let's start with some of the highlights of the third quarter of 2025 on Slide 8. We increased the installed base of connected light points to EUR 160 million at the end of Q3 2025 from EUR 136 million last year. Nominal sales decreased by 8.4% to EUR 1.407 billion, including a negative currency effect of 4.5%, which was mainly related to the depreciation of the U.S. dollar.

Comparable sales declined by 3.9%. Excluding the conventional business, the comparable sales decline was 2.7%. This is reflecting the continued weakness in Europe's Professional business and a softer demands in the U.S. In addition, the OEM business saw further demand compression and continued price pressure.

The adjusted EBITA margin decreased by 80 basis points to 9.7%. We sustained a robust gross margin, particularly in the Professional and in the consumer businesses. But we, at the same time, saw headwinds in the OEM business and conventional, which I will address later in the presentation. Net income decreased to EUR 76 million, reflecting a lower income from operation as well as a higher income tax expense as the previous year included one-off tax benefits. Finally, free cash flow was EUR 71 million.

I will now move on -- move to our 4 businesses. Starting with the Professional business on Slide 9. Nominal sales decreased by 6.8% to EUR 928 million, reflecting lower volumes and a negative FX impact of 4.6%, mainly related to the depreciation of the U.S. dollar.

Comparable sales declined by 2.1%, driven by different dynamics. First of all, we saw a softer-than-anticipated U.S. market. Europe remained weak, especially in the trade channel, and these developments were partly compensated by the continued growth of connected sales in most geographies and also a strong performance in agricultural lighting during the peak season for this segment.

The adjusted EBITA decreased to EUR 97 million with an EBITA margin sustained at a robust level of 10.4%, however, contracting by 40 basis points compared to last year mainly due to the lower sales. The business maintained a solid gross margin, which expanded sequentially, but contracted slightly against the high comparison base in the previous year, and we also retained strong cost discipline.

Moving on to the Consumer business on Slide 10. The positive momentum we saw in the first half of the year continued and strengthened in the third quarter, supported by sustained demand across all key markets. Nominal sales decreased by 1.1% to EUR 301 million, reflecting a negative currency impact of 4.8%, partly offset by the underlying growth.

Comparable sales growth was 3.7%, driven by the continued success of our connected portfolio, particularly Philips Hue, and the recent new product launches as was highlighted by As a few minutes ago. We also saw a further acceleration of online sales, particularly through our own e-commerce website.

Our Consumer business in India also continued to deliver strong performance, particularly in luminaires, further contributing to the segment's overall growth and profitability. Adjusted EBITA increased to EUR 27 million, while the margin expanding by 150 basis points to 9.1%, supported by a robust gross margin and operating leverage.

Continuing now with the OEM business on Slide 11. As anticipated, performance deteriorated in the third quarter. Nominal sales decreased by 26.1% to EUR 93 million, while comparable sales declined by 23%, driven by lower volumes and the persistent price pressure in nonconnected components. The impact of lower orders from two major customers highlighted in previous quarters continued to materially affect the top line. Price pressure continued to be intense in this market as in the previous quarters. And overall, we are also seeing a further weakening of the market demand, especially in Europe.

Adjusted EBITA decreased to EUR 4 million, with the margin contracting to 4.7%, mainly reflecting the gross margin decline due to the volume reduction and price pressure. Looking ahead, we expect market conditions to remain challenging, with limited recovery in demand in the near term.

And finally, turning to the Conventional business on Slide 12. Performance in the third quarter was broadly in line with expectations, reflecting the ongoing structural decline in this part of the portfolio. Nominal sales decreased by 25.3% to EUR 76 million impacted by lower volume and a negative currency effect. Comparable sales declined by 21.5%, consistent with the gradual phaseout of conventional technologies across most regions. The adjusted EBITA margin decreased by 230 basis points to 17%. This was mainly driven by a lower gross margin, which was impacted by temporarily higher manufacturing costs as we are rationalizing our manufacturing sites.

Let me now dive into the financial highlights on Slide 13, where we are showing the adjusted EBITA bridge for total Signify. The adjusted EBITA margin decreased by 80 basis points to 9.7% due to the following developments. The negative volume effect was 70 basis points, reflecting the decline of our OEM and Conventional businesses. The combined effect of price and mix was a negative 170 basis points, reflecting the further stabilization of price erosion trends across our business. As mentioned, we see higher the effect of price erosion in some parts of the business, such as OEM and Professional Europe, but also a positive pricing in the U.S.

Cost of goods sold overall had a usual contribution year-over-year this quarter, with four main elements within that. First, we continue to deliver strong bill of material savings across all businesses, in line and even slightly higher than in previous quarters, which was including an accelerated price negotiation savings.

Second, the overall manufacturing productivity was impacted specifically in the OEM business by significant volume decline, and in the Conventional business by temporarily higher manufacturing costs as a result of the site rationalization mentioned earlier. There were also one-off elements that impacted cost of goods sold positively last year, but did not repeat this year.

And finally, the cost of goods sold in the third quarter included the effect of incremental tariffs, which were mitigated through pricing action, and are therefore neutral on the total gross margin level.

The indirect costs improved by 130 basis points on adjusted EBITA margin level, reflecting the continued cost discipline across our business. Currency had a negative effect of only 10 basis points as we limited the effect of FX movements on our bottom line. Finally, Other had a positive effect of 40 basis points and related mainly to the outcome of a legal case.

On Slide 14, I'd like to zoom in our working capital performance during the quarter. Compared to the end of September 2024, working capital increased by EUR 20 million or by 70 basis points, from 7.7% to 8.4% of sales. Within working capital, we saw the following developments: inventories decreased by EUR 70 million; receivables reduced by EUR 52 million; payables were EUR 156 million lower; and finally, other working capital items reduced by EUR 13 million. The increase of the overall working capital ratio is mainly driven by 2 factors: the ramping up of consumer ahead of the peak season and the impact of the top line compression on the OEM inventory churn.

Now before I hand it back, I would like to touch on our progress toward our Brighter Lives, Better World 2025 commitments. Starting with greenhouse gas emissions. We are ahead of schedule to meet our 2025 goal of reducing emissions across our entire value chain by 40% compared to 2019. That's twice the pace required by the Paris agreements.

Next, on circular revenues, we reached 37% this quarter, well above our 2025 target of 32%. The biggest driver here continues to be serviceable luminaires within our Professional business, where we're seeing strong adoption across all regions.

When it comes to Bright Lives revenues, the part of our portfolio that directly supports health, well-being and food availability, we increased to 34% this quarter, up 1 point from last quarter and again, above our 2025 targets. Both our Professional and Consumer businesses are contributing strongly here.

And finally, on diversity, the percentage of women in leadership positions remained at 27% this quarter. While that's below where we want to be, we are continuing to take concrete steps to improve representation from more inclusive hiring practices to focused retention and engagement efforts to help us reach our 2025 ambition. So overall, we are making good progress, with strong momentum in most areas and a clear focus on where we still need to accelerate.

I will now hand back to As for the outlook.

Thank you, Zeljko. So moving on to the outlook. Based on the softer than previously expected outlook, particularly for the Professional business in the U.S., and further demand compression in the OEM business, we are updating our guidance for the full year 2025 as follows.

So we expect comparable sales growth of minus 2.5% to minus 3% for the year, which is equivalent to 1 -- minus 1 to minus 1.5 CSG, excluding Conventional. And as a result of this lower expected top line, we are also adapting our adjusted EBITA margin with a guidance to 9.1% to 9.6%. And finally, we expect our free cash flow to land at around 7% of sales. That's on the outlook.

Now I wanted to share a few reflections and talk a bit about the priorities as I see them going forward. Almost eight weeks into the role now -- let me do that. There is a lot to be proud of at Signify. I mean we have very committed, capable professionals, a really impressive world-class innovative engine and a strong culture of cost and capital discipline that continues to serve us very well. At the same time, we are also clear about the difficulties that we face as a company. The lighting market remains very challenging. Growth has been lacking and the performance has been volatile.

So coming in, I see the following immediate priorities. First, to outperform in what is a very tough markets. So we must focus on commercial and supply chain execution. We need to manage price pressure, continue to win in the connected and the specialty lighting and close efficiency gaps. We also need to maintain strict control and capital disciplines to enhance our profitability and cash flow. And I will make sure that, that discipline, we will stay with that going forward.

Secondly, we can, and we should be clearer about our strategic intents and our strategic objectives. And therefore, we are planning to review our strategy. We will organize the Capital Markets Day towards the middle of next year, where we will provide clarity on our portfolio on how we deliver durable growth and on capital allocation.

And thirdly, as key enablers, we will focus our R&D resources and continue to invest in accelerating digitalization and AI adoption. Now 18 months, the company launched a new operating model that we will not change, and we will fully leverage to its full potential. And at the same time, we will start shifting the culture, from products, to a more market-led mindset and approach. And from what I've seen so far that by addressing these priorities, I'm confident that we will set up Signify for future success.

And with that, I'll hand it back to the operator to facilitate the question-and-answer session.

[Operator Instructions] Our first question comes from Daniela Costa from Goldman Sachs.

I hope you can hear me well. I will ask one and then the follow-up. But I just wanted to ask on your kind of early thoughts in terms of the OEM business. So it seems to be mentioning intense pricing pressure, lost some customers. Do you see this as more structural or more cyclical when you look at it? And have -- was that anything to do with -- what prompted you to talk about reviewing the portfolio, I wonder.

How do we see the OEM business going forward? Well, first of all, we saw the impact of the loss of two specific customers that was quite significant. That also is explaining a large part of the drop we saw. That, of course, will go away after a year. But going forward, we expect that current conditions will continue to be challenging, both in terms of demand as well as the price pressure. But it's too early to call what exactly that will look like in the next year.

And then just following up on the topic of tariffs. I mean in the release, they weren't too many references to it, but I was just wondering if you could give us a little bit of what is happening on the ground, given the U.S. market was highly dependent on Chinese imports on lighting. What's sort of the inventory attitude you've seen at distributors. Has there been any restocking of Chinese product? Could this be impacting what you are seeing in the market right now? And ultimately, as you look medium term, if the tariff stand, do you see them as a positive or a negative for Signify? Is it an opportunity to gain market share and put prices through? Or also you are very dependent on Asia and it's not really -- we shouldn't see it this way? Just a little bit more color there would be very helpful.

Daniela, so maybe to give a bit of an update and a summary on what we see. So first of all, I think in general, on pricing, the scale players have generally taken price increases to the extent that was needed. Our price adjustment, on the Signify side, were generally in line with the market, and we also saw that prices increase are sticking.

Now overall, we've been able, in the third quarter like we did in the previous quarter, and we expect to be able to continue to do so to successfully mitigate the tariff increase with pricing. So with a slightly positive impact on the top line for our U.S. business and a neutral impact on the bottom line.

So overall, the strategy we have set up and of course, all the activities that we have taken on the supply chain side to adapt and to reduce the exposure or to optimize our cost base and outsourcing, I think, are really being executed really exactly in line with our plan. So there we are basically implementing what we had. And of course, we continue to maintain the agility to adapt, moving forward, depending on how the situation will evolve. But overall, slightly positive on top line, neutral on the bottom line and implementation in line with our strategy.

So you don't see it as a market share grabbing opportunity or something a bit more structural medium term is just a pass-through?

Look, the answer on that would be probably -- we should go more in detail, depending on the portfolio. Of course, what we are doing in the different portfolios is to find the balancing act between prioritizing market share gain where we do see opportunity and where we are extracting those opportunities very clearly, while protecting the margins. So I think it's really, at a more granular level, let's say, that this is going to be a different answer. But overall, it's to make sure that we can absolutely take advantage. And we have seen a clear example where we've been able to do so, while protecting the profitability, as I just mentioned. So this has actually been our strategy, and we are seeing that, of course, evolving, depending on the landscape of tariffs that has also been changing quite a bit over the last few months.

The next question comes from Martin Wilkie from Citi.

It's Martin from Citi. Just coming back to the overcapacity being redirected from China that you referred to, just understand where we are in that process. And obviously, we hear a lot about China's antipollution drive to reduce overcapacity across other industries. You probably hear more about markets like solar, batteries, things like that. But is there a reduction or an anticipated reduction in Chinese overcapacity? Or is that something that you expect to remain like this for the foreseeable future?

Yes. Thanks, Martin, for the question. So indeed, we look also at all the export statistics and what is happening with the trade flows. And indeed, what we see is that you see some of the decline in terms of trade flows from China to the U.S. seeing kind of an equal amount of quantities lending in the rest of the world and in Europe. So -- and that does cause some additional price pressure.

To your question around, hey, do we expect that -- how sustainable is that -- in China, we see that is kind of flattening out, that price erosion. And well, to whether we see a significant consolidation in the Chinese market is still to be seen. So I wouldn't want to conclude anything on that at this point.

And just related to that, just keen to hear about your first impression of industry dynamics and the side that we might get a lot more detail at the Capital Markets Day next year. But when you consider what's happening with Chinese competition, but also, as you pointed out, you have some great connected products and so forth at Signify, what are your first impressions of Signify's competitive position and in particular, the moat around the business to address some of these competitor challenges?

Yes. So there you really need to -- Martin, you need to really go deeper. What I see is that on the professional side, we play in many, many segments, and each segment has kind of its own dynamics. And equally, if you look at the business by trade channel, the dynamics around projects is very different than the competitive dynamics around the more traditional and online trade channels. So we need to make very explicit in our strategy and we will do that at Capital Markets Day about where we want to focus our efforts. And what is the portfolio that we want to build going forward. So that clarity will be created there.

The next question comes from Akash Gupta from JPMorgan.

My first one is on North America. So maybe if we can zoom in on U.S. business a bit. One of your U.S. competitors, they reported kind of flattish revenues in U.S. lighting, professional lighting, while you are talking about softness in the quarter, which was weaker than what you expected. Maybe if you can provide some color on what do you see in various categories in Professional channel? And I think you did talk about some weakness in public side. So maybe if you can talk about where do you see growth where you don't see growth in North America Professional. And is there any loss of market share that we should be aware of? So that's the first one.

Yes. Sure. Good question. And indeed, the U.S. market, I mean year-to-date, we are growing in the U.S. We had expected more of the U.S. market in the third quarter, but that was not as high as expected. So we saw more flattish pattern.

Now the two key messages on the U.S. market, I think, and you mentioned them yourself. One is that we see project activity is softening, and that is particularly driven by public sector projects. Will that change in the fourth quarter, that is to be seen. It's not that we lost projects, to your question around market share, but we see more of delays, right? So there's clearly a delay there.

And then there's the trade channel where there, we see quite tough competition, particularly on the lower end of the product portfolio. So to your question about how are we performing in that context. So I think it's fair to say that we are on par with markets when it comes to professional projects. We are outperforming when it comes to connected and agricultural lighting, and we are probably a bit below par when it comes to the trade and do-it-yourself channels.

And my follow-up is on organic growth guidance. So for this year, you are now guiding minus 1 to minus 1.5, excluding Conventional. And year-to-date, we are at minus 1.0. So that would imply that for Q4, you have -- the best expectation is flat organic growth. I think you already said consumer -- not consumer, sorry, OEM is going to be a bit weak in Q4. But maybe if you can tell us about the moving parts for both Professional and Consumer in Q4 that we should be aware of? And also on the growth, how much of this is also driven by price/mix compared to, let's say, simply lower than previously expected volumes?

Yes. Akash, maybe to give a bit of color on the -- as you said, the building bricks on the dynamic of the top line in the fourth quarter. So first of all, if you look at consumer there, we see, as we mentioned, a strengthening momentum and we expect this to continue, and we have confidence on the momentum to continue with a strong Q4. Of course, this is the highest and the strongest quarter for that business. The Conventional business also is more predictable.

Now to your question, I think the two areas where we see the most challenges and where we've looked, of course, at the different scenarios, Professional business. So this is trade as mentioned, in both U.S. and Europe and also the public sector in general as well as OEM business. So look, in the -- what is reflected in the guidance is the translation of what we see out of those scenarios of what could evolve in the fourth quarter in the continuity of our third quarter trends. So as we said, for the U.S. it's softer than what we had previously anticipated, but it's basically a softening of the momentum that we remain resilient in many parts of that business.

Now on the price, maybe looking back, what we've observed across all our businesses is a stability in the pricing trends over the last quarters. However, with more price intensity, clearly, in the nonconnected part for the OEM business and also definitely in the trade part in Europe and also to some extent, in the U.S.

So look, in terms of the price dynamics, it's not for price and mix dynamic. Of course, the mix will be impacted by our portfolio mix. But overall, no major change. And I think the softer or the update of the guidance is fundamentally driven by volumes. And as we said, mostly linked to professionally in the U.S. and OEM.

The next question comes from Chase Coughlan from Van Lanschot Kempen.

My first one regarding the Conventional business, you, of course, talked about rationalizing the footprint a little bit more, which might have a several quarter and had some profitability.Can you just elaborate a little bit on the exact plan there? How much more can you rationalize, for example, how many facilities are you operating at the moment? And what will that be in a few quarters?

Okay. Look, yes, the line was not totally right. But if I understood, and please correct me, the question, it's about the further rationalization of our manufacturing in convention. So look, yes, we've been, I mean, consistently, over the last few years, in driving, I think we used to have over 30 factories, now down to 3. So we've been doing proactively adjusting the manufacturing base, and we have a clear line of sight and a clear road map to do so.

Of course, as I indicated earlier, in the process of doing so, then you do have adjustments that you need to really manage in the manufacturing process. So this is where we see temporarily, some headwinds or higher manufacturing costs in the process and the transition of doing so, but I think we have a very clearly established road map to drive that further, to the extent that is required to recalibrate the supply chain of that business, which we have been doing consistently over the last few years and for which we had, again, a clear road map for the coming years.

Again, in that business, as a reminder, we are three parts. The general lighting or the conventional general lighting part of conventional, which is, of course, the part that is declining at a faster pace. We have the digital projection piece, which has a line of sight, let's say, another few years with very specific customers being served, and we have the specialty lighting, which has within that, growth opportunities. And that, of course, has a different road map of evolution in the future. And that will, of course, as we go along, see those pieces being bigger in the overscale of the conventional business.

Yes. Maybe just to add to that, I was -- I spent some time with the conventional team, and I was very actually very impressed with that multiyear road map, that is really nicely faced with clear milestones and sign posts to bring that business -- harvest that business to the best extent possible. So I think the team is doing an extremely solid job on that. And to the question, is there more to go after? Yes. So we are now single-digit plants, but we also know how the trajectory will -- what it will look like going forward.

Okay. That's very helpful. I hope the line is a bit more clear. Now just on my second question, my follow-up, as you spoke about, capital discipline is one of the priorities going forward. And I'm curious on -- we're seeing net debt year-over-year increase. Earnings are, of course, coming down at the moment. Can I get your thoughts on the ongoing share buyback scheme? Is that something that you think should be continued going forward? Or do you have any, let's say, preferences for capital allocation elsewhere?

Well, it's not that we don't have a capital allocation now, and I'll leave it to Zeljko to comment on that. But my promise was more around, I -- coming into this role, you talk to customers, partners, colleagues, but of course, also to investors. And I think what many investors rightly so ask for is, "Hey, what is your road map to sustainable growth"? What about your footprint and your portfolio? But also what about your capital allocation going forward? And I think we owe you that clarity, and we will include that in the Capital Markets Day mid next year, likely June, yes.

The next question comes from Wim Gille from ABN AMRO -- ODDO BHF.

My first question is around Nexperia. Obviously, there's a lot of turmoil around this company at this point in time in terms of supply. And given that both Nexperia as well as you guys are at Philips. Are there any connections left there in terms of supply chain? And should we be looking into this in relation to your business?

And the second question is, can you be a bit more specific around, let's say, the market share that you are looking at in the United States in terms of volumes? In particular, when I compare the performance of acuity versus you guys and if I did take into account a large part of the market used to be Chinese, which are no longer welcome there, I would have expected a bit more clarity on kind of your ability to win market share in terms of volumes in the U.S.

Yes. Maybe first on the -- your question on Nexperia. So the Nexperia components are used in some Signify products. However, we do not anticipate a material impact to our supply in the near term. It's a very limited impact and mostly in the OEM business. And also at the same time, we do have an active and proactive supply chain risk management, right? So we continue to monitor the situation. And we always consists -- constantly review all the alternative sources. So that has allowed us to, in this specific case, also to apply with a lot of agility, the required mitigation. And yes, I think overall, I think we are seeing limited impact and we do have -- and the teams have been able to, of course, very, very fast, adapt and mitigate. And that's part of the strategy we have of proactive supply chain risk management and multiple sourcing to be prepared for those kinds. So limited impact for us in the near term.

And then on the U.S. questions, are we keen to grow market share in the U.S.? Of course, we are. The -- but we need to make sure it's on strategy, right? So on the project side, clearly, we are doing well, and we are aiming to continue to grow. As I mentioned that we are probably a bit below par in the trade channel, and that is also where you see that dynamic indeed of the Chinese products. We are adding products into our portfolio that better fit that trade channel. So indeed, we see opportunities, right, in the U.S. to continue to grow our market share.

And then lastly, in terms of your priorities at the last slide, you also mentioned that you're looking to rationalize your portfolio. Are we then talking about significant chunks in terms of sales that you might exit or divest or whatever? Or is this more fine-tuning around the edges and it should not have a major impact on sales?

Now let me just emphasize, Wim, that at this point, I say we are reviewing our portfolio. Don't read that as rationalizing because it's too early for me to say, "Hey, we're going to cut this or add that." It's too early. Now that said, I mean, I think, ultimately, the portfolio choices should follow your strategy. So what we'll do is we will create clarity about where -- what is the narrative for the company, where do we want to go on a 3-, 5-year horizon. If this is the company we want to build, then these are logical steps to take in terms of portfolio.

And you should not only think line of business level there, but also around, "Hey, we are currently present in over 70 countries." We play in many different segments. But indeed, we also need to create clarity around how the different lines of business hang together and how we want to take that forward. So the answer is it's a review and all is included. I don't want to exclude anything at this point, nor do I want to create false expectations given where we are today.

The next question comes from Marc Hesselink from ING.

A question is actually I mean two things related, both, one on gross margin and one on the OpEx. So I think given what you said before, it's likely that the lower gross margin versus previous quarters is here to stay or maybe even increase -- the pressure will increase a bit. In the quarter itself in third quarter, you really offset that by significantly adjusting your -- predominantly your SG&A cost. Is that also the way forward that when the gross margin remains under pressure that you will take more action in your short-term SG&A cost?

Yes. Marc, thanks for the question. So I think, look, first of all, on the dynamic of the gross margin, what's very important to see in the dynamic. And as you said, comparing to -- I think we had 7 consecutive quarters with a margin -- gross margin above 40%, which typically would be on the higher end of the -- what we indicated as an entitlement.

I think when we look at professional and consumer business in the last quarter and as we expect moving forward, we continue to see a very robust gross margin. So the -- let's say, the sequential decrease to 39.5% is entirely linked to the two headwinds I was mentioning earlier, first on the OEM business. So there is -- there are clearly the implications of the magnitude of the decline we see in OEM business on the manufacturing productivity. So this is really linked to the OEM business. And second, the temporary or transitory increase or headwinds on the manufacturing cost base of the conventional business, which we do expect to normalize by mid of next year.

So I think in the dynamic of the gross margin, very clearly, very strong professional, very strong consumer. When we look, of course, at the dynamic for Q4, consumer having it's strongest quarter. And that, of course, will have a positive sequential implication on the evolution of the gross margin. So I think the dynamic on those two key pieces of the business are -- remain very strong and remain very much in line.

Actually, we even saw sequential expansion of the gross margin in the Professional business quarter-over-quarter and a very limited, let's say, a decrease compared to last year, which was a very high comparison base with some one-off elements. So look, the trajectory of our gross margin remaining very strong. The two specific elements which are impacting on the OEM business linked to the volume and on the conventional business, which is more transitory.

Now to your question on the evolution of the SG&A or the cost base indirect costs. As we indicated earlier, we are, of course, driving and further driving the optimization, making sure that we are deploying the investments needed to support the execution of our strategy, and this is what we are seeing clearly delivering on the connected parts and the specialty part of the business. And then, of course, at the same time, continuing to optimize and to adjust where needed, where we do see the most challenges. So I think this is a combination of those two elements that you see in the dynamic of our indirect cost base and that we expect to move forward. But the most important point is really the robustness of the gross margin absolutely sustained and confirmed for consumer and professional.

Great. Clear. And then maybe on the CapEx because also in last quarter and this quarter, the CapEx is a bit higher than last year. Is it a bit of timing? Or do you have -- is there a reason why CapEx would be increasing a bit?

So there within the CapEx, I think you have, on the tangible part of CapEx, it's a limited increase, but it's more linked to some of the intangible product development. So there, we do have some -- but again, in the magnitude, I think it remains on a relatively low base, while the business remains a very low CapEx intensity. So you're right, we've seen sequentially some increase, but this is linked mostly to capitalized developments in innovation, R&D and also in the digitalization part.

The next question comes from Elias New from Kepler Cheuvreux.

Just wondering on your other segment, which has seen strong momentum over recent quarters, but in the current quarter, seen a sequential decline in sales. Could you just perhaps give us some color on what is driving this? And how you would expect this to develop going forward?

Yes, maybe to -- what is included in others is linked to the ventures business, and we do have one specific venture that has been developed and positioned on the connected consumer space in China. And as you mentioned, we've seen a very strong momentum. I think this venture that is continuing to perform very well. However, there were some, I think, favorable, let's say, contribution or propelling drivers coming also from the subsidies that were deployed by -- in China that were supporting an accelerated level of growth in the last quarter, which has normalized as we've seen in the third quarter.

So this is the main -- the main element behind, but this is one of the ventures that is seeing a very successful traction and very well positioned in one part of the Chinese market, which is overall challenging, but that's one part of the market that has a good dynamic. And indeed, the translation of that has been lower in the last quarter compared to the previous quarters, but still substantially growing year-over-year.

The next question comes from Sven Weier from UBS.

It's just one. And I think we've discussed a lot about relative performance of Signify against other lighting players. But I'm more curious about the relative performance of lighting within construction against other construction segments. And we're obviously seeing quite a bit of an underperformance here of lighting against other segments in the last couple of years.

I guess my suspicion has always been around the renovation side that you see the kind of lagging effect of a higher LED installed base and longer replacement cycles, which I think has kind of been a bit denied by the company. I was just wondering if you're also aiming for the Capital Markets Day to provide us more color on that very point because I think it could be an important point to get a sense when does that kind of underperform potentially start to phase out and provide us more visibility on that item. That's my question.

Yes. Thanks, Sven. And it's important so that we always start with market, not ourselves. And indeed, I think we -- the market is at the final wave of ratification, if you want, but we are not at the end of it just yet. So you still see that then having an impact, I guess, on the lighting sector in comparison with other construction-related sectors.

On your question, will we create some clarity, yes. I think we'll create some clarity about how we see the harvesting road map for conventionals, but also how we see the market when it comes to ratification. And also where we see the growth opportunities because, clearly, beyond the hardware, we see then, of course, a lot of growth in connected, and that presents us with good opportunities as well. Yes. Short answer is yes, Sven, we will come back to that.

And so you agree that this could be a factor that you especially see on the renovation side out of the longer replacement cycles? Would you agree that this could be potentially one of the drags relative?

Maybe what I can say on -- look, when we look at the dynamics of the market, how it translates because we, of course, have leading indicators that to understand exactly what you are pointing out, the look -- in short, I think the way -- the market, and of course, renovation is the most important piece of our exposure. I mean we are higher -- our indexation to the renovation is higher than to the new build in the professional nonresidential space.

So to your question, I think, when you look at the different dynamics market per market, I would say, the answer to your -- or at least the conclusion you are taking is not the one that we would have. So I would understand that this has to be probably better articulated on how we see it forward, and we'll take note of your comment. But that's not what our analysis would indicate at least with the data we have.

We have time for one last question, and it comes from George Featherstone from Barclays.

It's just about the capital allocation going back to some of the questions you've had already. Cash on the balance sheet is down about 35% year-over-year. Free cash flow is down 40% year-over-year on a year-to-date basis. You're obviously now guiding for lower cash generation ahead. How concerned are you about these trends? And do you plan to take any proactive actions to conserve cash given the weaker market trends that you talked about already?

Yes. Thank you for your question. So first of all, if we look at the -- as part of our capital allocation policy and priorities, I think we've been very clear and that's what we've been driving consistently also over the past year to ensure and to sustain a strong capital structure, a strong balance sheet and a level of leverage that is supportive to an investment-grade rating sustained.

So when we look at our leverage year-over-year, it has slightly decreased. So it's in line with what we expected. We have just completed, as was communicated also our refinancing with now a longer tenure for the EUR 325 million that was at maturity in the last quarter. When we look at the dynamic of cash generation versus the implementation of our capital allocation policy defined for 2025, I think there is no change or no concern to your point because we look at -- we are well on track on the execution of our share buyback program. We are able to define the priorities supporting growth as we intended. So look, no, I think the dynamic and the adjustment that we have indicated are not leading to a correction on the overall equilibrium, let's say, on the cash generation versus cash utilization that we defined in our policy for 2025. So no major change there.

Okay. And just specifically on the buyback, do you intend to complete that? I mean I think it's on the guidance you've given is an up to EUR 150 million. Is your intention to go all the way to EUR 150 million at this stage?

So for now, we are well on track with the plan for the year. And yes, we are intending to complete, as what was committed again in our capital allocation policy, which still fits totally with the plan we have defined. So there, we are on track and expect to complete as was indicated. So in short, we had given a clear capital allocation policy for implementation in 2025, and we are executing to it consistently and expect to do so for the rest of the year.

And with that, I will now turn the call back over to Thelke Gerdes for any closing remarks.

Ladies and gentlemen, thank you very much for joining our earnings call today. If you have any additional questions, please do not hesitate to contact us. And again, thank you very much, and enjoy the rest of your day.