Signify Nv Ord

Hello, welcome to the Signify second quarter and half year 2025 results conference call, hosted by Telco Kosanovic, CFO and interim CEO, and Telco Gerdes, head of investor relations. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. If you wish to ask a question, please press key pound five on your telephone keypad. Please note that you are limited to one question and a follow-up per round. I would now like to give the floor to Elke Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's earnings call for the second quarter of 2025. With me today is Veljko Kosanovic, Signify's CFO and interim CEO. During this call, Zelko will take you through the second quarter highlights. After that, he will present the company's financial performance. And finally, he will discuss the outlook for the remainder of the year. And after that, we will be happy to take your questions. Our press release and presentation were published at 7 o'clock this morning. Both documents are available for download from our investor relations website. The transcript of this earnings call will be made available as soon as possible. And with that, I will now hand over to Zelko.

Thank you, Zelko, good morning everyone and thank you for joining us today. Let's start with some of the highlights for the second quarter of 2025 on slide 4. We increased the installed bays of connected lighting points to 156 million at the end of Q2 2025 from 236 million last year. Nominal sales decreased by 4.4% to €1,480,000,000, largely driven by a negative FX impact of 3%. The comparable sales decline of 1.4% reflects a top-line growth of 0.8%, excluding the conventional business. The momentum in our business continued through the second quarter, with comparable sales growth in both the professional and the consumer business. Connected and specialty lighting now represent over a third of our total sales. Connected and specialty lighting grew in all the regions, in all businesses, showing the importance and the impact of our strategy. Adjusted EBITDA decreased by 8 million euros to 110 million euros. The adjusted EBITDA margin decreased by 10 basis points to 7.8%. as the gross margin expansion was offset by a higher proportion of indirect costs. The net income decreased to 57 million euros, primarily due to lower operating income and higher adjusted items. Finally, the free cash flow generation was 36 million euros this quarter. I will now move to our four businesses. Starting with the professional business on slide five. The business returned to growth in the second quarter, led by a strong performance of our US business. The weakness we have seen in Europe over the past quarters is starting to weigh a lot less on our overall performance. While the trade channel remains weak, the repositioning of our business to capture opportunities in faster growing areas has allowed us to grow in connected and specialty lighting, in all geographies and all segments across Europe. The nominal sales decreased by 2.9% to 931 million euros, including a negative currency effect of 3.1%. Adjusted EBITDA decreased by 9 million euros to 69 million euros. The gross margin remained robust as a result of effect of price and cost management. The adjusted EBITDA margin decreased by 70 basis points to 7.4% as the fixed cost reductions were partly reinvested into mainly marketing and selling expenses to fuel our growth momentum. Moving on to the consumer business, on slide 6, nominal sales decreased by 0.5% to 296 million euros, including a negative currency effect of 3.1%. Comparable sales grew by 2.6%, reflecting the continued momentum in the consumer business in most markets. Signify continued to see strong performance of its connected home products. The adjusted EBITDA margin improved by 30 basis points to 7.4%, largely driven by volume growth. Continuing now with the OEM business, on slide 7, nominal sales decreased by 14.5% through €90 million, including a negative currency effect of 2.9%. Comparable sales declined by 11.6%, as we expected, as we continue to face intense price pressure for the non-connected components. In addition, the effect of lower orders from two major customers, as highlighted in the previous quarter, continue to weigh on the business top line. Connected components, on the other hand, continue to grow in line with our strategy. The adjusted EBITDA margin decreased by 240 basis points to 8.5% as the gross margin was impacted by negative pricing, however, sequentially improving versus the last quarter. Given the pressure on the top line, the margin remained resilient, supported by action we had put in place to protect the bottom line. For the second half of the year, we expect the OEM business to perform similarly to the first half, with ongoing price pressure and the continued impact from the two key customers, as already observed in Q1 and in Q2. Due to a shift in the timing of order fulfillment compared to last year, With deliveries moving from September to October, we anticipate a softer Q3 followed by a stronger comparable sales growth in Q4. This shift will alter the typical seasonality pattern and influence the profitability split between the two quarters. For the full year, we are continuing to expect an adjusted IMITA margin of mid to high single digits. And finally, the conventional business on slide 8. Nominal sales decreased by 28.9% to €81 million, including a negative currency effect of 2.1%. Comparable sales were down 26.8%, in line with our expectations, reflecting the structural decline of the business. the adjusted EBITDA margin improved by 290 basis points to 18.6%, mainly driven by gross margin expansion on the back of discipline and price and cost management. On the next slide, slide 9, I would like to discuss a couple of business highlights from Q2. Starting off with the latest corporate nights ranking, We ranked 6th overall and 1st in the Netherlands in Corporate 9's Europe's 50 Most Sustainable Corporations ranking. Our high placement reflects our strong performance across a number of sustainability indicators, such as sustainable revenue and investment, resource management and responsible innovation. Our professional business has helped the city of Gothenburg in Sweden to become safer, smarter and more sustainable. In total, we installed 27,000 connected light points since 2018 that provide smart functionality such as dynamic control, fault detection and enhanced safety through sensor-based lighting. The replacement of all lighting infrastructure has also led to energy savings of 80% reduce light pollution and lower operating costs, which supports further rollout of connected lighting across the city. The professional business also equips the Samsung Nat Airport in Ho Chi Minh City, in Vietnam, with smart lighting. The equipment of the new T3 domestic terminal of Ho Chi Minh City Airport is part of a number of projects we are delivering for the city. The smart lighting system enhances safety, comfort, and architectural aesthetics for up to 20 million passengers annually. The lighting system features motion sensors and glare-free illumination. This is in alignment with Vietnam's net-zero ambition and signifies sustainability commitment. Moving on to the consumer business, we expanded the Philips Hue ecosystem with the HuePlay wall washer. which uses our exclusive color cast technology to deliver vibrant wide angle gradients and lighting effects. When being synced to games, movies or music, the Playwall washer reacts in real time with rich full color gradients and immersive effects. When not syncing, it also provides premium ambient light. Next, I would like to discuss our sustainability performance on slide 10. During the second quarter, we continue to track ahead of schedule to achieve our 2025 target to reduce greenhouse gas emissions across our entire value chain by 40% against the 2019 baseline to double the pace required by the Paris Agreement. Circular revenues increased to 37% up another %4.6q1 and surpassing the 2025 target of 32%. The main contribution was from serviceable luminaires in the professional business in all regions. Bratolines revenues remained at 33% and beyond the 2025 target of 32%. This includes strong contribution from tunable professional products and special lighting that support health and well-being. The percentage of women in leadership positions remained at 27% this quarter, which is clearly not aligned with our 2025 ambitions. We continue our actions to increase representation through focused hiring practices for diversity across all levels and through retention and engagement action to reduce attrition. Let me now dive into the financial highlights on slide 12, where we are showing the adjusted EBITDA breach for Total Signified. The adjusted EBITDA margin decreased by 10 basis points to 7.8% due to the following developments. The negative volume effect was 30 basis points, largely attributable to the decline of our conventional business, as we saw positive volume growth in the professional and consumer businesses. The combined effect of price and mix was a negative 180 basis points. The effect of price erosion continues to stabilize or improve in most of our businesses. This effect is partially compensated by the decrease in our bill of material and other COGS savings, which had a positive effect of 140 basis points. I would like to highlight that the growth margin in this quarter stood at a solid 4.4%, up 10 basis points from the high base of last year, reflecting our team's disciplined price and cost management. Indirect costs improved by 50 basis points on adjusted EBITDA margin level, reflecting the capture of savings from our cost reduction program. As mentioned earlier, we have chosen to step up our investments, particularly into selling and marketing expenses, to support the growth momentum. Finery currency had a negative effect of only 10 basis points as we limited the effect of FX movements on our bottom line. On slide 13, I'd like to zoom in on working capital performance during the quarter. Compared to the end of June 2024, working capital reduced by 47 million euros or by 40 basis points from 7.9% to 7.5% of sales. Inventories decreased by 77 million euros, receivables reduced by 67 million euros. Payables were 108 million euros lower. Finally, other working capital items reduced by 12 million euros. Let's now continue with the outlook on slide 15. Based on our performance in the first half of the year and the growing momentum in our business, we are on track to achieve our guidance of low single-digit comparable sales roles excluding the conventional business for the full year. We are adding a range of 9.6 to 9.9% to our EBITDA guidance, underpinned by continued top-line momentum and the disciplined execution of our first plans. This reflects a somewhat different seasonality pattern this year compared to last year, as this year will be more back-end loaded with the hedger Q4. And finally, we are continuing to expect a free cash flow generation in the range of 7% to 8% of sales, driven by strong cash conversions, particularly in the fourth quarter. Our share buyback program began in February, and we already completed the share repurchase of €65 million of shares until the end of June. And with that, I will now hand back to the operator for the Q&A.

Ladies and gentlemen, we are now ready to take your questions. If you wish to ask a question, please press key pound five on your telephone keypad. Please remember that you are limited to one question and a follow-up per round. Our first question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Hope you can hear me well. I have one question and then I'll use the follow-up opportunity if possible. But first, I guess to follow up on your commentary that this year is going to be more towards Q4 and more back-end loaded. I know you normally have a seasonality towards that, but given your comments also regarding Q3, can you elaborate on like what gives you the confidence on that more stronger Q4? Is it sort of what volume assumptions do you have? What do you still have on carryover from the December 2023 savings, perhaps just by business? Why are you confident on that Q4 uptake?

Yeah, good morning, Daniela. So, again, to clarify on the first of all on the full year, If we talk about the top line, so we confirm the guidance, so we confirm the plan. On the EBITDA, we also confirm our guidance of stable EBITDA for the full year. Now the one element that is changed compared to the usual seasonality, and first of all we always have a stronger H2 than H1, that's always the case, and we always have a stronger Q4 In general, now this year we expect a stronger pattern of Season 18 Q4. This is driven by different factors. First of all, on the top line, the momentum that we see building up. will be stronger for consumers, so this means that we expect a stronger Q4 and a stronger weight of the consumer business overall for Signify in Q4. We see the building of the momentum to continue in the professional business and then the reason for introducing or adding a range for guidance in EBITDA is fundamentally because of the positioning of sales and the conversion, let's say of projects execution that is stronger in the fourth quarter, but this is all underpinned in our plan today to be delivered, albeit with a stronger seasonality in the last quarter.

And sorry, just the follow-up on that, how much do you still left of savings from the 200 million and what are the tariffs impacts that you factor into the guidance?

So first on the cost savings specifically, so we have, to keep it simple, we have now realized the full savings, the gross savings of 200 million that were intended as a result of our restructuring program that was implemented. So we see that full gross savings has come true. So it's fully realized, to your question, and it's fully in for the full year. At the same time, we have, of course, the effect part of those core savings are offset by the effect of inflation, mainly salary inflation, and we have kept and consciously reinvested and redeployed resources, especially on selling and marketing expenses, or R&D expenses, general and administration expenses have reduced, so we see there, let's say, more impact of the savings, but on the selling and marketing, we are redeploying resources to ensure and to feed the momentum of growth in particular in the execution of our strategy and specifically to support our growth momentum in the connected and specialty business where we've seen a very strong improvement in the last quarter. So the full savings are in and we have some reinvestments that are being done and of course we will continue to adjust our costs where we have more headwinds in some parts of our business.

And the tariffs part?

Tariffs, we had a very clear plan, as we indicated in the previous quarter, to deliver Q2 and to be prepared for H2. So the plans, we are very pleased with the execution of the plan. The impact overall on our Q2 financial performance has been broadly neutral on top line and bottom line, so in line with what we expected. And we have the plan laid out to be able to continue to adapt for the second half of the year, as we were expecting. So there we are very much on track for the parts we can control in the scenarios that are known today. So well in line with what we had planned and expected, which is well embedded and confirmed within our patents.

All right, thank you. Our next question comes from Martin Wilkie from Citi.

Good morning. Thank you. It's Martin from Citi. The question was, again, just coming back to tariffs, and obviously the tariff rates have been volatile so far in the quarter, and we probably don't quite know what they're going to be for the full year. But when you look at your pricing developments, and obviously it's still negative in the quarter, the ability or even the assumption that you have for the second half on pricing, how should we think about that? And obviously your gross margin was quite strong in the quarter and you've been able to offset some negative price for productivity. But as you move into the second half, is that gross margin still protectable? How are you seeing the ability to pass on any required price increase and what's the reaction to that from your customers? Thank you.

Yes, good morning Martin. So indeed, when we look at, first of all, we have, as we have indicated, different levers that we are activating to adapt to the tariffs and of course looking overall how we manage the equation of price and cost and gross margin and we've been able to do so. in general globally in Q2 but also specifically in the US. So we have implemented a price that we intended that we needed to implement as part of those levels of mitigation and the price realization that we were achieving in Q2 was totally in line with our expectation and as we see for the remainder of the year we also expect to be able to drive uh the first realization but again more in general the gross margin management and to be in control for the second half of the year uh as as we expected so look as you said uh we cannot speculate on any evolution of the tariffs at least what we are very much in control and driving with the right agility and anticipation is the deployment of all the plans and action that we have which includes price realization. So again, on price, on track with what we had planned for and expected, and we expect to be able to do so for the second half of the year.

Thank you. And just to follow up on that, in terms of any Obviously, one of the fears is that higher pricing could lead to lower demand, and I guess that's probably more likely or feared about in consumer products than it might be in your professional business. But has there been any negative volume reaction to putting up pricing to offset tariffs, or is it just too early to tell how the reaction might be from customers to these higher prices?

What I can say for our U.S. business in general, overall minimal. What we have seen is that our momentum on demand, especially on projects, has remained very strong, especially the project and the professional business. If anything we've seen on the stock and flow part, a bit more of destocking than restocking. So that was probably not so much a free buy patterns, maybe more on the contrary, but not very material. So overall, let's say the demand for us in the US across all segments has been very strong intrinsic. So not really in fact, of course, we had on top of that a bit of contribution from price, but on the demand side, I think it has been very, very strong and not really impacted when you look at Q2. Of course, the level of uncertainty remains high, but from what we can see, and of course, supported by the pipeline of our project, I think we have, yes, we are confident on the momentum for the business to continue for the second half.

Thank you very much.

Thank you. Our next question comes from Akash Bhutta from J.P. Morgan. Please go ahead.

Hi, good morning, and thanks for your time. I have two as well. The first one is a follow-up on your comment earlier on Daniela's question. So you were kind of indicating that Q4 you will have a bit stronger top line because of recovery in consumer and also the momentum that is building up in professional I suppose that you may have some visibility on professional given the nature of the business, but can you comment on visibility you have in consumer because we have seen over time that you have been a bit optimistic in your assessment. So I just want to gauge what could be the risk that we may not see a strong Q4 that you are anticipating. And on the same topic, will there be any difference in cost allocation in Q4 compared to, let's say, Q4 of last year and also first three-quarterly run rate? So the high margin in Q4, is this all a function of top line, or will there be any change in cost? Maybe some of these marketing costs that you mentioned might go away in Q4. So that's the first one.

Yes, good morning. I have a few elements to try to address your question. First of all, on the consumer business, I think the momentum that we see in particular on the connected part of our business is giving us, I would say, across the different geographies because this is really consistent across all our geographies. uh quite a good level of visibility and of course when we look at the different specific initiatives that we've been focusing on i think from that point of view we have i think a rather solid uh visibility on the momentum on what is expected of course for that business q4 is always and that has been the case a very strong order it was the case last year where we were able to deliver quite in line with our expectations so look i would say that the level of visibility there is quite is quite good and quite solid for the consumer business from from the top line perspective now to your question on the parameters of cost of course this is a quarter again which is very similar to what we see in general which is helping a quite significant or an improvement on the cost absorption mechanically but we have also the additional effect of a further cost adjustment that we are taking in some parts of our business like we are seeing Parts of the business that are facing more headwinds, there we are making sure that we adapt and redeploy resources and at the same time keep investing for areas where we have a quite stronger or more predictable, let's say, return on investment equation, which is particularly the case of the consumer business. So linked to all those two phenomena, I think we would expect in Q4 of the indirect cost absorption on the overall P&L of Signify for people.

Thank you. And my follow-up question is on corporate or elimination line, where I think in this quarter you had minus 4 million, which was half, sorry, not half, but less than half of roughly 10 million you had in second quarter last year, so maybe if you can explain

what is driving that and what shall we expect going forward on that um corporate or elimination line thank you yes so i think you're referring to the uh others right which is uh uh where we're also so in the other so one important element here as we've mentioned and highlighted uh so this is where we see uh some of our early stage growth platforms and pilot projects that are not yet integrated in one of our four businesses. So when those ventures become more mature and more scalable, then they are transferred into one of our global businesses. It was, for example, the case several years ago with the agricultural lighting. So we have a venture jointly invested with an industry leader in China to develop consumer connected solution and this is more on the connected space in the Chinese IoT ecosystem and this has been quite successful in the first half of the year and in particular in Q2 and this was led to different factors. So look there we have a very good momentum which is probably a bit more on the positioning and the the successful execution of our strategy in that specific venture, which has been helping and which is reported under this order. So that's the main factor and the main explanation, let's say, to what you see translated also in the profit. Because beyond those ventures, you have some of our central costs that are reported, early stage research, global costs. But the main parameter to your question is fundamentally the performance and the contribution of the growth of this specific venture.

Thank you.

The next question comes from Mark Hesseling from ING. Please go ahead.

Yes, thank you. Could you discuss the measures that you've taken on marketing and sales which have accelerated the growth a bit and what kind of things did you do and is this a temporary effect? Is this a sort of lever that you can pull to increase the growth a bit but at a higher cost? Just explain a bit what happened there, please.

Yes, good morning, Mark. So I think maybe the way to look at it is how it's, of course, supporting the execution of our strategy. As I had mentioned earlier, what is very important for us, because this is really where we see strategy working, especially on connected and specialty, where we've seen growth in all our businesses, in all our segments and in all our geographies, even in the context of, let's say, an overall market demand that has not been necessarily significantly improving. But there, the way we've also been able to do that, so to give you an example, of course in the consumer business, There is a very key element of how we are driving the ROI of demand activation. So there we've been making sure for several quarters that we do that and we are seeing the returns coming through. On the professional business, there are also our ability, in particular in Europe, so if we talk about the professional Europe business, there we have engaged for a few quarters, redeployment of our resources to be able to capture growth opportunities in segments where we saw opportunity, and this has a bear fruit. So I think there it's really about repositioning ourselves in parts of the business that are more that have a better growth momentum and fully in line with our strategy. So this is really where we've been specifically and selectively redeploying our resources. So this is something which, of course, we will continue to do. It will, in the end, contribute from, let's say, the cost absorption improvements as soon as the growth comes back. At the same time, we are also clearly readjusting and adapting in parts of the business which are facing more headwinds. So, for example, we've seen in the first quarter stronger headwinds in the OM business. We have taken steps there to adjust the cost, which is also what explains the improvement of our profitability from q1 to q2 in that business and in other parts where we see more challenges we are we are going to continue to optimize and redeploy but fundamentally it's really about really looking at the sales and marketing investment that we can continue to feed to support the continuum of our growth momentum which we have seen uh confirmed and strengthening in in the last quarter and with that we expect to see and to continue to strengthen the second half of the year

Great, great, that's clear. And my second question is on China. Also in the first quarter, China was already improving a bit better than expected, but especially I think from the second quarter onwards, you have a much easier comparable base. Can you maybe talk a bit about the dynamics that you're seeing there?

Look, yeah, indeed, in China, we would, I think, with similar view that we indicated I think Q2 was again growing in both the consumer and the professional business. We do not see fundamental changes or improvements, let's say, in the structural market dynamics, so this is, I would say, much more the outcome of actions and refocusing on strategy that has again been delivering results in line with our expectation and we will remain, I would say, cautiously optimistic for the remainder of the year. For the mid-longer term, I think we know that there are great opportunities that will continue to be there. We have a small market share, we have a very a clear model and a clear strategy to capture opportunities but in the shorter term I would say is to continue to focus on the actions that we have selected but overall we do not foresee a significant improvement of the market environment. So I would say the indication there would be very similar to what we said but on the back of a Q2 that is giving us a stronger confidence on our execution capability. Again, reminding that this is with a very strong profitability and cash generation model, which gives us a lot of agility also to redeploy resources with the right agility to gain momentum where there are opportunities. So it's a better, more optimistic, let's say, compared to a quarter ago, but on the market itself. similar and cautious still on the market demand side.

Great. Thank you.

Ladies and gentlemen, just a reminder, you can press key pound five on your telephone keypad at any time to ask a question. Our next question comes from Sven Beyer from USC. Please go ahead.

Yeah, morning, guys. Thanks for taking my questions and doing the call. I mean, my first question is also a little bit alluding to what you already said in terms of your cost agility. And I mean, of course, as we can all see, the market is not going to get any better anytime soon. Also, into next year, I think the leading indicators are not super promising. And the effects of your big cost-saving program are all in the back. My question really is, what is the scope for you that you can do another big program like this? I mean, is there still potential to make significant further cuts, or would the next step also be have to think about maybe also discontinuing business in some regions where margins are just not sufficient enough? That's the first question. Thank you.

First of all, the big or large enterprise level kind of cost resizing program we implemented was very much needed to adapt to the reality of the demand, but also was done at the time where we were uh redesigning our operating model with a much more customer-centric and by design much more agile model to run the specific businesses so i would say to your question i think two parts first making sure that we have that agility and this is really what we've been focusing on the agility on the allocation of resources to support successful execution of our strategy and the successful execution of our strategy whether the market demand is more favorable or not. I think clearly that's what we've been able to do in the last quarter. Connected and Specialty now represent over a third of our business. we've been growing across the board in connected and in some places, you know, with a strong double digit despite of a market environment that is not necessarily significantly improved. And we've seen also our analysis indicates that we, in most parts, gain market share. So I think the one part which is very important is making sure that we apply the right agility and anticipation to invest and fuel the growth momentum and the execution of our strategy. On the other hand, we will continue to keep doing and probably a bit more specifically in each of the businesses to adjust and to optimize our cost base, which could include indeed in some cases where we do not have the right return or value creation line of sites to readjust and to redeploy to parts where we do have a better output. So I think the big difference, Sven, to the way we have kind of engaged our cost resizing is I think we've done a lot on the central part of the organization and now it's probably much more agile and much more adapted to each and every specific businesses and of course then at the level of each and every specific region. So yes, we will continue to do optimization of costs. but probably not in a major cost resizing program like the one that we have successfully deployed in the last 18 months.

The second question I had was just, and maybe it's a bit early to ask, but the expectation on the new CEO, I was just wondering in terms of his mandate from the board, I mean, is it to keep the status quo in terms of the company, the structure, or will he have kind of full flexibility to do whatever he thinks is the right thing to do?

Look, I mean, Sven, as we'll be on board, in fact, the first of September, so very, very shortly, I think you'll have the opportunity to have a first-hand view on the outlook. Look, I think we are preparing of course and making sure that this is a very smooth transition on onboarding, but I would say it's going to be all about leading and working on driving the success of the company with a clear strategy and all the adjustments that will be needed that you will be able to do. So look, I think you will probably be in a better position to give you a first-hand answer to your question. But I think it's, so stay tuned. Very, very soon you will be able to hear first-hand from us.

Sounds good. Thank you, Cecho.

Thank you.

The next question comes from Chase Cotland from Van Lamschotkampen. Please go ahead.

Hi, good morning, all and thank you for taking my questions. I have to both on the professional business. And firstly, you've obviously commented that you saw some strong demand in the US across q2. I'm curious, did you see any sort of pull forward effect pre tariffs or any pre buying sort of benefits? I think appear in the US also spoke to that. So I'm curious on what you're seeing from customers there.

Yes, good morning. So I think I briefly mentioned that earlier, but just to come back, I think in general what we saw in Q2, broadly speaking, no positive pre-buy contribution on the demand side. If anything, we've rather seen a neutral, let's say, on the project side of the business, but on the stock and flow, We've seen probably a bit more of wait-and-see, hence a bit more destocking than stocking actually in the second quarter, but in overall not really material. So I think it's not been, let's say, a positive accelerator of our growth performance in the second quarter linked to this rebuy effect. At least that's not what we've seen, by the way, both in professional and in consumer.

Okay, very clear. And my second question, I think in Q1, you spoke quite clearly about a weak European professional business and how that weighed on the margin. And I assume the situation is still the same, but I didn't see any particular commentary about it in the press release. But I'm curious on, yeah, is there still quite a margin drag there in Q2 from the weak European markets?

So here maybe what I can say on the professional Europe, actually we've seen a sequential improvement in the second quarter. Our analysis from our analysis indicates that we gain market share. What's important is that we actually saw growth in connected and specialty in all the segments, indoor, outdoor and in all the geographies in the second quarter. So positive growth in office and industry, retail and hospitality and also back to growth in public. So I think it's been a positive momentum. Now at the same time we continue to see softness on the trade part and particularly offline trade, stock and flow part of the business in Europe. across the board but I think it's a bit more contrasted and a better let's say an improved sequential dynamic specifically linked to the execution of our strategy and this is very important because there is the outcome also of actions we've taken to reposition ourselves which has started to bear fruits and gives us confidence so I think it's more contrasted and hence the effect on the drag on profitability as you rightly pointed, was still strong in Q1 because we had a high comparison base, has been less of an impact in the second quarter. As we expected, this is going to stabilize. It has stabilized in Q2 and will stabilize for the remainder of the year. So this is indeed, as you pointed, not as much of a drag on the profitability equation coming from the professional Europe business as it was in previous quarters.

All right. Perfect. That's very helpful. Thank you.

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

Good morning. Thanks for taking my question. Just the one from me, thanks. Could you please talk a little bit about pricing in connected versus non-connected, what you're seeing there in the quarter, and how you expect that to develop going forward, please?

So, good morning. What I can say is the pricing trend, first of all, overall, has continued to be stable and even improving. Of course, the execution of our strategy in connected and specialty is supportive to that dynamic. And there we talk about, of course, price and mix combined, if you like. So, there clearly, there is a link in what we see on the dynamic of price in general with the execution of our strategy and the growth momentum we see in the connected and specialty part of the business.

Perhaps just a quick follow-up if I can, particularly on connected. Do you see in line with increased marketing spend going into the biggest seasonal quarters for sales, 3Q and 4Q, particularly in the consumer business, really, I'm wondering here. Do you sort of envision having to perhaps cut costs in the connected business, sorry, cut prices in the connected business in addition to the typical marketing spend you'd see just to sort of support volumes there, or is that not something you might see at the moment?

Luke, I think again in in general i think that's what we've been able to uh you know i think to demonstrate over the last few quarters we manage the gross margin as a whole so i think we really look at all those parameters in combination uh in a way that is uh you know consistent and cohesive so look at all those parameters and we typically and in the consumer business i think we have a a playbook and a model to be able to do that successfully. So we expect to continue to do that. I mean of course it's always a bit more of a holistic equation that the teams have to manage, but there we have the two points which has been the case in the high season as we saw last year. Strong delivery on sales with the return on investment and the translation of that into the profitability expansion. So this is what we are expecting to replicate and enhance further this year.

Okay. Thank you very much.

Thank you. And with that, I will now turn the call back over to Telco 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. Again, thank you very much and enjoy the rest of your day.