Hello, and welcome to Signify second quarter and half year results, 2023. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question- and- answer session. Please note, this is limited to one question + one follow-up. Today, I am pleased to present Eric Rondolat, Javier van Engelen, and Thelke Gerdes. Please go ahead with your meeting. Good morning, everyone, and welcome to Signify's second quarter 2023 earnings call. With me today are Eric Rondolat, CEO of Signify, and Javier van Engelen, CFO. During this call, Eric will take you through the second quarter highlights, after which Javier will present the company's financial performance. Eric will come back to discuss the outlook for the remainder of the year. After that, we will be happy to take your questions. Our press release and presentation 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. With that, I will now hand over to Eric. Thank you, Thelke. Good morning, everyone, thank you for joining us today. Let's start with some highlights of the second quarter, 2023 on slide four. We continue to face softness in the consumer, indoor professional and OEM channels, the recovery of the Chinese market was slower than we originally anticipated. On the other hand, the outdoor professional and professional connected lighting businesses saw a positive traction. Gross margin was strong, thanks to price discipline and effective and COGS management. Our fixed cost did not keep pace with the overall volume decline. Our Digital Products division was most exposed to these challenges, while Digital Solutions showed more resilience. Our supply chain lead time reduction and working capital improvement measures supported free cash flow performance. On the next slide, slide five, we see Signify's overall Q2 performance. Our installed base of connected light points increased from 117 million in Q1 to 119 million at the end of Q2. LED-based sales were 84% of our total revenues. Nominal sales in Q2 were EUR 1.6 billion, translating into a nominal decline of 10.5% and a comparable sales decline of 8.6%. The adjusted EBITA margin decreased to 8.3% versus 9.5% in Q2 last year. We continued to improve our gross margin as we benefited from positive pricing, as well as effective measures to reduce the cost of goods sold. As seen in Q1, the top-line decline resulted in an under absorption of fixed costs, which mainly impacted our Digital Products division, while the Digital Solutions and Conventional Products divisions both demonstrated operating margin resilience. Net income came at EUR 45 million compared to EUR 248 million in Q2 last year. Finally, free cash flow was EUR 88 million, mainly due to a lower cash flow, cash outflow from working capital, helped by improving supplier lead times. As a reminder, Q2 last year included a non-operational gain and cash proceeds from the disposal of real estate assets of EUR 184 million in the net income and EUR 194 million in free cash flow. Let's now move on to our division, starting with Digital Solutions on slide six. Nominal sales in Q2 were EUR 974 million, with comparable sales showing a decline of 5.7% against a high comparison base of 11.6% in Q2 2022. During the quarter, the outdoor segment and especially the public segment, continued to grow, but we faced a more challenging indoor professional business and softness in agriculture lighting as high energy costs continued to put pressure on the yields of our customers. We are pleased with the adjusted EBIT margin of 10%, an improvement of 50 basis points from last year, which is mainly attributable to gross margin recovery from lower cost of goods sold and continued price discipline. On the next slide, slide seven, I would like to discuss a couple of business highlights of our Digital Solutions division. We upgraded the lighting of two Scandlines ferries. We installed 3D-printed fixtures made of 55% of recycled polycarbonate materials. In addition, the lighter materials resulted in 28% CO2 emission savings during transportation. We also retrofitted all 1,800 light points of the Dublin Port Tunnel with Philips insert trays. We developed a plug-and-play kit consisting of new gear and LED trays that could be used to retrofit each fixture at the site in just five to six minutes. This was the lowest CO2 footprint solution as it avoided transportation back and forth to and from the factory, and also as we were able to reuse components of the old fixture, including the entire housing. The project was part of the Irish government's energy efficiency plan and was partially funded by the European Green Deal. Let's now move on to our next division, Digital Products, on slide eight. In the second quarter, the Digital Products division saw a comparable sales decline of 12.1%, which was mainly driven by continued weakness in the consumer connected segment, the OEM business, and top-line weakness of our Chinese Klite business. The adjusted EBIT margin was 6.9%, a decrease of 370 basis points, impacted by lower fixed cost absorption due to the volume reduction. Next, on slide nine, I would like to talk to some business highlights of Digital Products. We launched a new Home Monitoring technology in WiZ. The Home Monitoring technology combines lighting and security in an integrated approach as lights, sensors, and cameras can be combined to detect motion and prevent and deter intruders. The new smart Home Monitoring WiZ Indoor Camera is the first of many Home Monitoring products to come. We are also planning to extend Home Monitoring into Philips Hue this year. We'll make more announcements after the summer. We have introduced new ultra-efficient A-class LED outdoor lights for both plug-in and solar applications. These new lights offer a durable and energy-efficient performance and can generate energy savings of up to 50% versus previous LED light. Let's move now to slide 10 and talk to Conventional Products. Overall, we are pleased with the execution of our last company standing strategy, fully offsetting the cost pressure we were facing last year and bring our margins back to the historical levels. The comparable sales decline of 15% this quarter still reflects a strong pricing carryover effect, which will reduce over the course of the next quarters, gradually bringing the comparable sales performance to the underlying volume decline. The adjusted EBITA margin recovered to 20.5%, an improvement of 500 basis points versus Q2 last year, as headwinds we saw in 2022 have turned into tailwinds, namely energy, transportation costs, and Forex. Next, I would like to discuss our sustainability performance on slide 11. We remain on track to reduce emissions across the entire value chain by 40%, driven by our leadership in energy-efficient and connected lighting solutions, which significantly reduce emissions during the use phase. Circular Revenues remain stable at 29%, on track to reach our 2025 targets of 32%. The main contribution was from serviceable and upgradable luminaires, including the first serviceable horticulture product family. Brighter Lives Revenues increased to 28%, also on track to reach our 2025 target of 32%. This was driven by the performance of Cooper's tune-able products, supporting the consumer well-being portfolio and by the continued strength of our safety and security portfolio. Finally, the percentage of women in leadership position continued to improve to 30%, on track to reach our 2025 target of 34%. This was mainly due to the acceleration of hiring practices for diversity across all levels. On slide 12, I would like to describe our new virtual power purchase agreement contract. Together with Heineken, Nobian, and Philips, we secured a renewable electricity guarantee from the Myttylampi wind farm in Finland. This 10-year agreement will deliver 330 GWh of renewable electricity per year to the consortium. This is the equivalent of the electricity required to power 40,000 households and helps to avoid over 230,000 tons of CO2 emissions per year. The facility helps power our operational electricity usage in Europe, excluding Poland, for which we already have an existing agreement in place. With this new facility, we now cover nearly all of our operational electricity use in Europe. I would like now to hand over to Javier, who will discuss our financial performance in more details. Thank you, Eric, and good morning to everyone on the call. Let me dive straight into the key financial highlights on slide 14, where we are showing the adjusted EBITA margin bridge for total Signify. As you can see on the slide, our adjusted EBITA margin decreased from 9.5% in Q2 2022 to 8.3% this year. The combination of volume decline and fixed cost under absorption impacted the adjusted EBITA margin by a negative 3.4 percentage points. In line with previous quarters, a large part of this was offset by the combined positive margin impact of mix, pricing, and cost of goods savings. More specifically, continued pricing discipline contributed by a positive 1.1 percentage points, while year-on-year cost decreases in raw materials and logistics also contributed with a positive 1 percentage point. Currency effects did not play a big role on the adjusted EBITA margin level. The negative contribution of 20 basis points was mainly related to the depreciation of emerging market currencies, which are fully offset through price increases in their respective markets in order to maintain gross margin. On slide 15, I'd like to discuss our working capital performance during the quarter. Compared to the end of June 2022, working capital reduced by EUR 143 million, or from 10.5% - 8.9% of sales. Inventories decreased by EUR 347 million as a result of improving supply chain lead times and inventory discipline. Receivables reduced by EUR 189 million, due to both our efforts to minimize overages and due to the lower year-on-year sales level. Payables were $422 million lower, coming down to more normalized levels, while at the same time we are driving down inventories. As lead times further normalize, we continue to see the potential to further reduce our working capital to historical levels of low to mid-single digit% of sales. On slide 16, I would like to briefly summarize our first half 2023 performance. Overall, we saw comparable sales decline of 8.9%. This on the back of two years of strong recovery from COVID. While we continue to see a strong performance and market share gains in outdoor professional lighting, comparable sales growth was impacted by weakness in indoor professional lighting and the consumer and OEM segments. Versus first half 2022, the adjusted EBITA margin declined by 140 basis points. While the first half of 2023 benefited from gross margin improvements, this was more than offset by the negative impact of fixed costs under absorption. First half, free cash flow was back to positive, driven by working capital improvements from lower inventories and improved accounts receivable. At the end of the first half, our net debt to EBITA ratio was 1.9x, slightly above the 1.7x at the end of the first half in 2022. Please note, though, that the 1.7 multiple last year was positively impacted by the disposal of non-strategic real estate assets in Q2 last year. With this, I'm handing it back to Eric for the outlook and some closing remarks. Thanks, Javier. Let's conclude with the outlook on slide 18. As stated in our press release this morning, we are continuing to face challenges in some of our end markets. The continued economic softness has led us to apply caution in our outlook for the full-year and adjust our adjusted EBITA margin guidance to 9.5%-10.5%, from previously 10.5%-11.5%. At the same time, we are well positioned in terms of free cash flow generation, as we started to benefit from improving supplier lead times and effective working capital measures. We now expect free cash flow generation to be at the higher end of the 6%-8% range. We have begun implementing structural measures to adapt our cost structure to the market environment. These measures will enable enhanced performance and a stronger focus on growth opportunities. This concludes our presentations for today. Javier and I are now happy to answer your questions. If you do have a question, please signal by pressing star one on your telephone keypad. Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment. Again, that is star one. The first question today comes from Daniela Costa of Goldman Sachs. Hi, good morning. Thank you for taking my questions. Maybe just, I'll, I'll ask two, and I'll do them one at a time. Just on, on the, the first one, can you comment a bit on pricing? Obviously, COGS seems to be down, but pricing is up as well. What are you seeing in terms of the competitive landscape, given the volume situation? Do you expect to maintain positive pricing for the foreseeable, for the foreseeable future? Maybe you can address that 1 first. Good morning, Daniela. I'll, I'll take the question on. As we've always talked in the past, if you go back to the whole pricing topic, our focus really has been on managing gross margin as a whole. We've seen in the last couple of quarters that we've been able to bring our pricing, or at least to bring pricing to the level that allows us to bring our gross margin back to 39%. Obviously, it has been disproportionate, I would say, on the conventional segment, where the impact of the headwinds last year of costs were bigger than on other divisions. When you now look at the adjusted EBITA margin bridge, we see that we still have about 110 basis points year-on-year positive impact on top of some cost savings. And I think we are now well positioned from a margin point of view, the recovery where we were last year. If you think about what's happening on pricing dynamics in the market from a competitive point of view, we still expect that there will be a little bit of tail being in the next quarter for the pricing that we've taken. Again, especially also on the conventional side, we believe pricing levels are probably now reflecting the cost of goods that we've seen in the market. At this point in time, from a gross margin, we believe that we are at a good place, also a pricing point of view. Now, there will perhaps be some pressure here or there on specific elements if there is a bit of volume to be gained, but at this point in time, we've seen competition still acting, I would say, reasonably in line with the economic reality of some inflation still happening and pricing therefore being rather stable. Thank you. Maybe a follow-up for you as well. In terms of inventories and working capital, and you seem to still have quite a, a bit of room to potentially restock further. What, what prevented sort of a, a further unwind during 2Q? I guess your guidance probably implies you expect that to unwind strong- more strongly in the, to the second half. If you can comment on the dynamics there on the, on the inventory normalization? Yeah, thank you. And I'll take that also. First of all, I think the, the first half, working capital in the first half cash flow signals that we've, I would say, turned the corner from last year, where the first half, if you exclude the one-time item of real estate, that last year was negative, this year back to positive, which shows a turnaround of an inventory increase last year to taking inventories down this year, which has been a key focus area. You're right, Daniela, is typically you would know that our second half of the year from a cash flow generation point of view is stronger. You know that in the first half, we still build up inventories for a stronger second half from a sales point of view. By the end of the year, we normally build down inventories as the first half of the next year is obviously slightly lower than the, the second half of this year. Yes, we expect further release of cash flow in the second half, and therefore, also the guidance, where we now talk more the upper side of the range. What basically are the key drivers? Number one, continued reduction of lead times. We've seen lead times coming down. We have to make sure that we keep on pushing those lead times with the suppliers to make sure those sheet lead times are shortened and that we also, in our own internal systems, reflect those, and then the inventory would automatically start adjusting itself. That's what we expect also in the second half. When we talk to our suppliers these days, we don't only talk about cost savings, we also talk about lead times, because we know that has an important impact on the cash flow that we generate. I would say the second question is going to be the, the visibility on economic development and volume development in the second half. There's still a lot of variability out there. As we've been seeing that the economy was not recovering as fast, of course, we have been slightly optimistic on our sales. We have to recover on that. Reliability of the forecast for the second half and lead time reductions are the two elements that will then help us to bring our inventories further down to the end of the year, and as such, also help us to deliver the guidance to the upper end of the cash flow guidance. Okay, maybe I can ask a follow-up on there, on the point of like, reliability on the forecast and, and just how you're thinking about the forecasting for the second half on volumes. I know you don't have explicit guidance, but you do have a margin guidance. Is that, so what's the lower and the upper band based on in terms of, of, of growth? Good morning, Daniela. Look, we've been at the beginning of the year, cautious on the top line for two reasons. One is the lack of visibility and still the volatility in some markets on the way they respond to macroeconomic events. The second element is also a very distorted base of comparison. I would say, you know, you can go back one year, you can go back two year. When you look at Q3, Q3 was reasonably strong last year in terms of growth, but you also compared to Q1, Q3, that was very weak because it's at, you know, the specific moment where we could not find the components to deliver our customers. You have a base effect which is not which is not negligible. When we look at the end market, and that's the way we try to think about growth, we expect the Chinese market, specifically to show some signs of rebound in H2, and that's what we have also in our plans, something which we haven't seen so far. We expected to have the first signs in Q1. We expected a better Q2. It has not happened in China. If you look at the macro indicators of construction, non-residential and residential construction, I mean, the forecasts have been brought down and they're negative for the full-year in China. There's a question mark on China and whether we're gonna be also capable to focus on the growing parts of the business and allocate our resource where there is a potential growth. When we see the second half, and it answers also to your question, we see probably a negative performance in Q3, and we have a better compare in Q4, but it will also depends on the end market. We're very cautious, you know, on the top line at this point in time. But we probably are more comfortable, you know, on the bottom line since the gross margin has been quite strong and resilient. As Javier has explained, now we are 220 basis points above where we were in the same quarter last year. You, you would see that the gross margin was also weak in the second half in 2022, this is where we're also gonna make a difference. Thank you. Our next question comes from Akash Gupta of JP Morgan. Yes. Hi, good morning, everybody. My first question is on the cost saving actions. When I look at your headcount, I see it's down about 3% quarter-on-quarter and more than 6% year-on-year. If you can talk about, have you already started to see benefit of this lower cost, or is it something that would be more an incrementally a margin driver for the second half? Are there any other cost saving actions as well that you are looking to pull for supporting the margins in the second half? That's the question number one. Yes, good morning, Akash. You know, when we look at, at the headcount, the way we report it, we need to be mindful of the fact that it's a lot about the headcounts we have in the manufacturing plants, and that fluctuates quite strongly with the volume, especially, you know, in Mexico, where we don't have the possibility to have temporary workers. Basically, you know, when the volume goes up and down, we need to recruit, and then we need to let people go, and this is why those numbers are quite inflated. Otherwise, if you look at, the attrition, our, our attrition is pretty much in line with the average. Now, we have started to take cost measures, you know, of different types and of different natures, which are tactical cost measures in order to adapt to the lower top line. That has happened, you know, in many different places in the group. We will start to see some of the benefits of those, I believe, you know, in the second half. We also think that we need to take, you know, structural measures, you know, in line with what we've done in the past, which is continue to shrink the central part of the organization, you know, in order to resource and to allocate resource in the operating part. That's a movement, you know, that we have started many, many years ago. We think that at this point in time, in order to go back into the 25%-29% bracket that we had given for our no manufacturing costs, and we believe this is where we need to be, we are going to have to put in place, you know, some measures that will allow us to go back into that range. The measures have already been taken. Some of them, the tactical, now we're thinking about more structural measures, you know, for the future, that will, potentially, you know, impact a little bit 2023, but probably, mostly, 2024. Thank you. My follow-up is on exchange rates. Clearly, in the second quarter, it was not that major driver. When we look at the depreciation in Chinese yuan, how shall we think about effects in the bridge in the second half? Thank you. Yeah, I'll, I'll take that one, Akash. Look, if you look at exchange rates, fundamentally, what you're mentioning is that's clear, right? At this point in time, in the first half of the year, the euro has strengthened against, let's say, mainly the dollar and the RMB. When you look at the effect dynamic, what we clearly see is we see a positive impact as we are short on the Chinese RMB. We see, in general, a positive impact on our total profitability from the weakening of the RMB. As you know, it's still one of the currencies in our revised hedging policy that we still hedge against. Part of the benefit goes away because of the hedges that we take just automatically going forward, but it in it, it's still a positive. That base is compensated a little bit by being long on some other currencies. Then the only thing which is left for this quarter, which is different than last year or so, is some erosion of emerging market currencies. As we explained also last time, is we do have an effects on, on those kind of emerging. We talk here about the Egyptian pound, we talk about Pakistan, we talk about Argentina, we talk about the Turkish lira. Those markets are used to devaluation or inflation pricing. In those markets, we do get a slight negative in terms of exchange rates, but we manage those markets on a gross margin basis, so they're used to pricing for devaluation of the currency, and that's how we track those. Net, net, I would say that the impact of effects for this quarter is about zero. The slight negative on the bridge is compensated by pricing in those markets with developing currencies. For the balance of the year, again, I'm not gonna speculate on what happens with exchange rates, because the best thing I can do is look at today's spot rate. That dynamic, I think, will roughly be the same. We're gonna see still, at the current rates, that the relative weakness of the RMB will still give us some tailwind, but the same dynamic on emerging market currencies. The one thing that will help us a little bit further in the next quarter is last year, we talked to you about our hedging policy and revision of the hedging policy. That hedging policy in the second half should give us a little bit of a tailwind as we have unwound some old exchange rate hedges we had. If anything, we can expect a slight tailwind from exchange rates in the second half of the year, whereas last year, again, it was a significant negative. Thank you. Our next question is from... Pardon me. Sven Weier. Sven Weier of UBS Frankfurt. Please go ahead. Yeah, good morning. I have two questions. The first one is a follow-up on the margin guidance range, and I was just wondering if the revenue outcome is the only main factor that defines the range, or what other main items have you assumed in the range? That's the first one. Thank you. Yes, good morning, Sven. It's basically, the margins, the gross margin, and the cost, and the top line. It's the three components. You know, the way we looked at it, there is still a possibility, we believe, you know, to be well-positioned in operating margin for the full-year. We need two ingredients. We need the top line to be where we estimated and we expect it to be, and then we need to be able also to adapt our cost base. If that happens, I mean, we'll be able to be well-positioned into that bracket, but we need to act very quickly, you know, on costs whenever the top line goes down. This is what we have been lagging in doing this year. We know we always expected the market to be better and as that has not come, we are a bit late, you know, on adjusting the cost compared to what we do normally. That's in place, the plans are being developed, and this is gonna happen. Now for the end of the year, it will be mostly still tactical, but it will be taking effect in full-year in 2024. The element that we've looked at is the top line and the cost. We believe that the gross margin will remain strong. It's just, you know, an equation of our cost coverage by the top line. Okay. Thank you. The second question I had was just on where you see your clients on the stocking, whether you think the destocking is, is done, and whether you see or whether you assume in your guidance range, any kind of restocking at some point in the second half? Thank you. We have seen, in order of magnitude, a very strong destocking on the OEM business. Basically, when the crisis of components broke out at the time, we believe that many of our customers, as the products were not available, made a lot of procurement of different type of products, in different parts of the world. They're receiving these products, you know, in the first half of 2023, and they end up having a very high level of inventory, and we've seen a major destocking in the OEM channel. That's one. On the consumer part of the business, we have seen further destocking lately. We believe that they are at a level where, you know, it should normally remain now stable. The biggest part, and the biggest part of the decline on the consumer market was more linked to the market for us, not so much to the destocking, although there's been still a little bit of destocking. We haven't seen that on the professional side of the market. There was not so much destocking there. Moving forward, you know, destocking is, is, is completely linked to the dynamic of the end market. I think if the end market hold, we should be done with most of the destocking that has already happened. I don't know, on the, on the OEM side of the business, it may take a bit longer for our customers to be able to use their available stock. We may have some more remnants on the, on the, on the OEM channel, but I think on the consumer and the rest of the professional market, it should be done if the end markets remain at the level at which they are now. Clear. Thank you, Eric. The next question today comes from Tim Ehlers of Kepler Cheuvreux. Yes, good morning, everyone. Thanks for taking my question. The first one is related to Digital Solutions. Can you maybe add some, some flavor there, how connected lighting was performing in comparison to the normal lighting solutions? Yes, Tim. What we have seen in the professional business and Digital Solutions, we've seen a pattern that was also a pattern we started to see in 2020 when the crisis broke, which is relatively weaker than the average retail and hospitality segment with less investments by the customers. We've seen a slightly declining but still positive office and industry segments. Here, the projects are either happening or there is a delay, but the projects are still there and they're firm. Where we have seen a relatively important growth, and that, I would say, is not only in the USA with the IIJA, it's not only in Europe with the Green Deal, but it's also in other countries in the world where we see similar incentives being brought to the market in order to develop energy efficient solutions and make the, the country more sustainable. You know, lately we have been launching our Green Switch in a country like Indonesia. When we talk about connected lighting, we've seen a good performance in office and industry, but mostly in public infrastructure, outdoor type of businesses. In a way, we offer not only the lighting, but we offer also the controls, and we also offer the software, which is monitoring and controlling the installation. Okay, clear. Thanks for that. A follow-up question to Digital Solutions. You mentioned that horticulture was somewhat soft still in Q2. Do you expect a recovery there towards the end of this year, or do you also see or expect some, some visible impact going forward from horticulture? Yeah, horticulture has a double negative impact to the performance at this point in time, because the performance last year was extremely strong. The performance last year was extremely strong, especially in Q3. The way this business works is that the decisions are made in the second quarter of the year for the projects that are gonna be then implemented in Q3 and Q4. We had a high compare in 2022 with a business that was running extremely well. This year, you know, given the price of energy and still the price of energy in Q1 and Q2, the projects that we normally are able to capture on that business were not implemented by the customers. We see, you know, it's a season that is missed because of the high energy cost, and that will not be recovered in this year. Of course, with the price of energy going down, our customers now have better return on investments, and we will see that business going back to a different level of normality in 2024. It's gonna be very, very tough in 2023. It has impacted our performance and the performance of Digital Solutions quite substantially in Q2, and we believe that it's gonna be pretty much the same in Q3. Okay. Thanks for that. One last question, regarding the, the weakness in the consumer segment. Can you pin that to an geography? You mentioned, I remember in Q1, that you were, yeah, not that happy with the development in China, from the consumer business. Is that still the case, or is that the trend you see in other geographies as well? Maybe, yeah, if you could add some light there, that would be great. Yes, Tim, let me, let me look at it geographically and from a business standpoint. What we see today, we take proxy. We have two proxies, which is, one is the residential construction market, which is down in forecast for the full-year in US, China, and Europe, and forecasted to be negative in those three regions for the full-year. We look also at another indicator, which is the home equipment investment, and this is so down, and this is also a good proxy for us for our products. At the end of the day, we have these micro elements that tell us that the market is not recovering in dynamic for what is linked to our lighting industry and to what we sell. If I go back to your question and I give it a different spin, and I talk to the businesses, what we have seen, we have seen that our business and our connected consumer business, you know, here we have two brands, Philips Hue and WiZ. That business was very, very impacted, and probably more so than the non-connected part of the business, and more Hue than WiZ. WiZ, which is operating from a lower base, still had a decent level of performance, but not on the Hue side. We're looking at this point in time, so at the market, we're looking at, you know, what's happening at the level of our competitors, to see how we need to position that offer. Positioning it, you know, bringing value and highlighting the value that that business has in terms of its uniqueness in that ecosystem, but also bringing to our consumer connected market, what we call Home Monitoring. This is the association of security and lighting, which has already been launched on the WiZ side, and which will be announced at the end of the, or after the summer in our Hue offer. Here the idea is also to be able to use security for lighting and lighting for security. It's not security for security. Meaning that, you can imagine that you have your home, and there's an intruder, then all your lights are gonna turn flashing red. Why is that interesting? Because sound alarms cannot be heard from a distance, as they are really kept inside the house, but the light can be seen from a long distance. At the same time, you know, the cameras and the security can be used for lighting, because cameras in the home can detect movement and can then activate light scenes. You know, at the same time, that's an innovation that we bring to the market. You know, our cameras are gonna be the first one to be end-to-end encrypted for both iOS and Android. The market and the consumer market has been slow and even more so on the connected part of our offers, and that's valid worldwide. Okay. Clear. Thanks for that, Eric. Our next question comes from Martin Wilkie of Citi. Yeah, thank you. Good morning. Just two questions from me, thank you. The first one is on Klite. You've called it out as being part of the weakness in Digital Products. Just to understand if that's the same reason as China being a bit weaker than expected. I know also Klite sells globally through private label and so forth. Just to understand a little bit more about what drove that Klite weakness. The second question was, just to understand, when you obviously got this new brand, you've talked about WiZ in connected lighting. How does that fit with the Philips Hue products? You know, I've, I've looked at kind of what you sell. From the outside, it looks like there is an overlap, but just to understand how you're positioning those two sets of products. Thank you. Hey, good morning, Martin. Klite is pretty much the same story on the consumer market, selling also to other customers. You know, a big part of what we do in Klite is to sell to other lighting companies or to brand labels for retailers. We've seen the same softness as what we see on our part of the business on the part of the business of big retailers that are brand labeling or other lighting manufacturers. The positioning of WiZ and Hue is the following: Hue is operating with Zigbee and Bluetooth communication protocols. We believe, and this is why we did the move at the time, there is, there is another market which is based on Wi-Fi and Bluetooth. That market of Wi-Fi and Bluetooth, you know, and there's some markets in the world, especially in Asia, that are very, very Wi-Fi oriented, was not captured by Hue. We positioned WiZ, which is basically having a different communication protocol, Wi-Fi, and Zigbee, in order to capture that market. You know, it's like you have cars and they have different type of engines. It's a bit the same case here. We have two offers. Those offers go to the same market of destination, but they have two different communication engines. We see that, that complementarity is necessary because when we operating in a market where both Wi-Fi and Zigbee are accessible to the market and are wanted by the market, then with two offers, we can segment much better our approach. You know, so far, Hue had been growing and WiZ had been growing handsomely, which is not the case this year given the market conditions. That combination for us works pretty well. Thank you. Our next question is from Joseph Zhou of Redburn. Hi. Thank you for taking my questions. My first question is related to your underline in the report, and it has gone up quite a lot this quarter. I think normally the run rate is something like EUR 18 million-EUR 19 million a quarter, but this quarter is EUR 10 million-EUR 9 million. Can you give us some color in as to why that line has gone up, and what to expect for the full-year and going forward? Thank you. Hey, good morning, Joseph. I'll, I'll take that question. Just to just take a step back, the other when we, when we look at the, the segment reporting, we try as much as possible to put all the costs back to divisions, to get a real sense of profitability of divisions, and we try to minimize, keeping costs in other. What we keep in other, as you remember, is some central costs that we do not allocate, whether that is some central functions or some central innovations. Typically, you're right, that cost is between, I would say, EUR 20 million-EUR 25 million a quarter that we have. Now, in the first half of the year, what we did with the other thing that stayed in that bucket is some adjustments on accruals taken the previous year. If we take a provision for commissions or provisions for rebates, or provision on variable compensation at the end of 2022, at the beginning of 2023, if there's any variation on the actual payments versus what was calculated, that stayed in other because we don't allocate that back to divisions. When you look at the difference last year versus this year, what you see last year, that sum of provisions that we made at the end of 2021 ended up with a slight release of provisions at the start of 2022. This year, when we take the same exercise, we had to add. The provisions were slightly lower than what the actuals came in, and that explains the swing of about EUR 10 million year-on-year. We had a release of about EUR 3 million last year, EUR 7 million kind of incremental cost this year. That explains the swing. From a forward-looking point of view, as you correctly say, we expect this kind of to be normalized at about EUR 20 million-EUR 25 million per quarter, which would be the run rate that we have. The swing year-on-year is just because of the closing out of provisions of the previous year. Thank you. That's, that's very clear. Then also in your release, you have mentioned you have begun to implement some structural measures. Can you maybe talk a little bit about, you know, what these actions are, and also whether the labor inflation has been a big challenge for you? Yes. Good morning, Joseph. You know, the labor inflation was, you know, something that we, we had to do in view of the inflation, so we did it. It was totally integrated in the plan. When it come to structural measures, I've already answered to the question. You know, we will, whenever, you know, we can talk about it in more details, we will do so. But you need to, to remember probably two things that are fundamentally important in the way we manage our cost. First, we manage our cost as a percentage of sales, and we need to be between 25%-29%. That's one. Second, our philosophy when it come to our cost structure, is to have a lighter, central part of the organization to be able to allocate costs, in the operating part. I think these are the two fundamental things that we are systematically, you know, following when it comes to the cost reduction aspects. That's what we're gonna have to do now to adjust our cost to sales. Okay. Thank you. Our next question comes from Marc Hesselink of ING. Yes, thank you. First question, is actually trying to look at your, your, your medium-term guidance of the adjusted EBITA margin between 11% and 13%. Is it still the goal to get back to into that range, taking all the cost measures that you take? Do you need to go back to growth to get to that level again? Yeah. Good morning, Marc. The, the, yeah, the mid-term guidance was for the end of the year, so we had to correct it, you know, as you've seen in the past, in the past quarters. Now, you know, for us, it's just a matter of realigning the organization to a different level of reality. We have not given a mid-term guidance at this point in time. I think we'll probably have a capital market day, you know, sometimes in, in the coming quarters, where we will give an indication of what is the potential of the company moving forward. You know, certainly that the potential that we have is higher than the guidance we have given for this year, for all the reasons that we have explained. Moving forward, readjusting the company to the reality of what we have in front of us, allocating resources where we have growth potential. You know, we have a lot of Horizon Three businesses, namely, Li-Fi, you know, BrightSites for the extension of 5G networks, where we see a lot of potential, moving forward. If... You know, the underlying question is: Is there a better potential performance than the one that we're guiding for, for this year? Yes, for sure. You know, in the midterm, we should be able to continue to expand and create value on the, on the bottom line. Okay, thanks. My second question is, what are you seeing on market share and maybe taking into account with the current inflationary environment, do you see clients downtrading? No, it, Well, when we look at the market share, it's complicated because of all the different swings that we have seen in, you know, in, in the, in the compares. What we would say, you know, at this point in time is that, when we look at the details of the segments, you know, we're operating, there, there can be slight differences, but we would see it in the following way. We believe that in Europe, and especially on the professional side of the market, we are gaining share, you know, in a complicated environment. We think that in the US, especially because the market has moved a lot towards the stock and flow part of the business, we have slightly lost market share. When it comes to China, it's a bit more complicated because the swings there have been quite substantial, but I would say that we are stable to slightly losing. In order to do that, we look at the companies that are listed, and we look at their performance in 2019, and we compare in, in, in, in absolute terms, and we compare the performance 2019 to their performance in 2022 or in the beginning of 2023, and we compare to ours. I mean, that's the best way to do it. In the OEM business, we believe that we have also worldwide taken market share when we look, you know, at the other companies that we can compare with and that are listed, because that's the only way to get reasonable and accurate numbers. Now, I can go into more details, because behind these global views, we're gonna see that in the professional market, you know, in general, we are gaining share on the public part and the infrastructure investments. We are slightly losing share on office and industry, and we are stable on retail and hospitality. When we go into more details, you know, there are different type of colors that we can give, but that's the way we look at competition and market share, taking a base which is stable and looking at where we are today and where competitors are today compared to the base. Very clear. Thanks. Maybe just to follow more up on, on the on the consumer side, do you, do you see any downtrading there? No, not, not massively, at this point in time. What we see happening is on the connected part of the market, we see some offers that come at a lower price, but that's not specifically circumstantial, you know, linked to the situation that we see today. That has been, you know, happening for, for many, many years. When the market is attractive and developing, you have all sorts of actors coming, but no specific and massive downtrading there. Okay, thank you. Our next question comes from Jacqueline Healy of Bank of America. Hi. Thanks. Good morning. Thanks for taking my question. Just wanted to expand actually on the previous one to push you a little bit on the downtrading. Consumers trading to switching from higher value, higher margin products to lower value products, potentially. You mentioned already that connected, connected lighting and consumers softened, but LED lamps grew. Is that an example of consumers trading down? Is there any difference in terms of region? Do you see any difference in North America versus Europe, for example? Thanks. Yep. Let me go maybe deeper on that one. What we have seen during the crisis is that consumers were basically, and let me be a bit simplistic, they were keeping their jobs, so they were making savings. Part of these savings were going to, you know, equipment, home equipment, and we benefited a lot from that trend, and especially, you know, on the connected part of the business. If you look at the connected part of the business, it had a fabulous performance over a few years. We're starting from a very high point. Now, when we look at consumers today, consumers today are putting less of their money in home equipment goods. They are probably, you know, spending more money in traveling, in holidays, which, you know, they could not do for two years in a row. When that specific situation is happening and you include on it inflation, there's a little bit of down trading on the connected part of the market, that we see customers going for lower cost offers and less to premium brand offers. This is why we need to reinforce the position of our offer. We think that, you know, for the longer term, the ecosystem that we offer is very strong. We just need to make sure that when customers make the choices, they know it, and they don't compare, you know, a connected bulb to a connected bulb. There's probably, at this point in time, a little bit of down trading, where consumers would go less for higher value product and more for lower value product. We believe it's just something which is happening at this point in time, and it's not a longer term trend. Okay. Any difference between North America and Europe in that? I would say, you know, the markets where we've been, very, very strong, in connected lighting, U.S., we can take Benelux, we can take DACH, we can take the Nordics. We see that pattern pretty much in all those markets where, you know, our market share is very strong. Okay. Thank you. Very clear. That is all the time we have for questions today. I would therefore like to hand the call over to Thelke Gerdes for any additional or 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 Philippe or myself. Again, thank you very much and enjoy the rest of your day. That does indeed conclude the Signify second quarter and half year results 2023 conference call. We thank you all for your participation, and you may now disconnect.