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Financing Government Lighting Projects Philips Lighting Capital March 2013

Financing Government Lighting Projects Philips Lighting Capital March 2013. Agenda. Current Market Realities Philips Lighting Capital Our Charter Our Solution Product Structure Features & Benefits Value Proposition Competitive Positioning Case Studies

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Financing Government Lighting Projects Philips Lighting Capital March 2013

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  1. Financing Government Lighting ProjectsPhilips Lighting CapitalMarch 2013

  2. Agenda Current Market Realities Philips Lighting Capital Our Charter Our Solution Product Structure Features & Benefits Value Proposition Competitive Positioning Case Studies Public – Private Partnership - Alabama Saves US Conference of Mayors Initiative Lighting Project Upgrade – Central Pennsylvania City

  3. The Customer Challenge……. Changes in the lighting industry are influencing customer behavior and decisioning: Legislative changes eliminating certain lighting products Environmental concerns Economic considerations Rising cost of energy Availability of more cost efficient lighting solutions Rebates and grants available to move to more efficient lighting solutions Lower monthly payment Decrease term Improve ROI Desire to own lighting assets vs. rental from utility

  4. The Customer Challenge……. Customers need to move quickly to address all of these issues, but have to deal with the financial aspects…. CAPEX budget considerations Availability of CAPEX dollars in current budget Planning for future CAPEX dollars may come at a cost/penalty Utilization of existing bank lines of credit Using cash on hand Bond issuance Opportunity cost – what gets “horse traded” Cost of delaying Continue paying higher utility and maintenance costs Lose out on incentives/rebates/tax benefits

  5. What are your customers saying…. I’ll begin the process to request bond funding… Come back to see me next February, I’ll put the project into the 2014 budget….. I’d love to move forward, but I do not know how I can pay for the initial investment…. I’m going to call my bank and try to finance the project with them…. This looks great and I can see the benefits, but I just can’t move forward now…. I will have to put in a capital improvement request and maybe I can get it approved…. Let me see if I can scrape together some capital out of my budget……

  6. Philips Lighting Capital Our Charter • Enable Commercial and Government customers to take advantage of sustainable, energy efficient lighting and control systems • Pay for the upgrade/retrofit from the savings generated by the new technology • Leverage rebates, grants and incentives to improve customer’s ROI • Provide access to best-in-class consultants and service providers • Deliver a flexible and efficient financing solution aligned with the project acquisition process

  7. The Philips Lighting Capital Solution Our Solution Lighting Project Financing 100% project financing including equipment, installation, disposal of old assets, labor costs and freight Can finance a buy-out of the poles from the utility Customizable terms from 12 to 120 months, which can be structured around energy saving produced by the new system Customer takes ownership of the assets day one Philips and its finance arm PLC handle all of the documentation and make the process completely painless Lines of Credit available for multi-stage projects Progress Payment structure available for large, labor intensive projects

  8. Common Lighting Projects in Government 8

  9. Benefits of Financing – GOVERNMENT Customers Conservation of cash and credit lines A more expedient form of borrowing Fully compliant with local bidding/RFP processes Efficient underwriting & documentation processes 100% Financing Equipment, installation costs and disposal are all included in one convenient, fixed monthly payment. Payments can be structured around energy savings, budget cycles and or months in operation (i.e. school districts) Customer holds title to equipment so rebates and incentive inure to the customer Philips provides a total solution – One Stop Shopping

  10. Tax-Exempt Municipal Lease vs. Bond TAX EXEMPT LEASE VERY SIMPLE EFFICIENT PROCESS (1 WEEK) DOES NOT REQUIRE VOTER APPROVAL 3 DOCUMENTS TO EXECUTE RATES 5% - 6.5% LIGHTING SPECIFIC PROJECTS BOND ISSUANCE LENGTHY PROCESS – UP TO 1 YEAR REQUIRES VOTER APPROVAL (LONG TERM DEBT) EXHAUSTIVE DOCUMENTATION RATES 4% - 5.75% LOAN STRUCTURE CAN INCLUDE DISCRETIONARY PROJECTS AN ATTRACTIVE ALTERNATIVE TO BOND DEBT FOR GOVERNMENT

  11. Philips Lighting Capital vs. Performance Contracts LEASE GREATER REALIZED SAVINGS QUICKER PAYBACK SIMPLER DOCUMENTATION VERY SIMPLE STRUCTURE TO DELIVER & EXECUTE PERFORMANCE CONTRACTS PARTIAL SAVINGS SHARED WITH CUSTOMER 10-15 YEAR CONTRACTS EXHAUSTIVE DOCUMENTATION COMPLEX STRUCTURE NEED LIGHTING TO MAKE THE PROJECT ROI WORK CUSTOMERS RECEIVE A BETTER ROI VERSUS ESCOS

  12. PHILIPS Lighting Capital Program - Summary Turnkey solution that couples financing into the project Commercial businesses Governmental entities Conveniencelending Takes away budget restriction objection A variety of menu options Access to capital after the “economic earthquake” Act on projects NOW !

  13. Financing PLC Project Highlights 2012 • Philips Lighting Leasing Projects • Private University - $1.1M campus parking facility • Texas Public School Buy Board - $9.2M – 6 school districts • City in S. California - $68K LED park lighting upgrade • Regional Airport NC - $3.7M indoor/outdoor parking • City in Central PA – $4.6M streetscape lighting project • Borough in NJ - $2.3M lighting project for shopping district 13

  14. Public – Private Partnerships • State of Alabama – Alabama Department of Economic and Community Affairs (ADECA) • $25M US Government ARRA Grant • In-state energy efficiency projects for Commercial Entities • Leveraged 10:1 with participating lenders to $250M • $25M Allocated to Philips/Philips Lighting Capital • $2.5M in escrow from the ADECA to cover • $1.2M in loss pool coverage for defaults • $1.3M allocated towards customer interest rate buy-down to 1%

  15. The United States of Conference of MayorsJean Cantrell: Philips primary contact • The Organization • The official nonpartisan of organization of Cities • Comprised of Cities of population in excess of 30,000 • 1,295 Cities in the country meet this criteria • Cities are represented by City Mayor and/or Chief Elected Official • Primary roles of USCM- Mayors • Promote the development of effective national urban/suburban policy; • Strengthen federal-city relationships; • Ensure that federal policy meets urban needs; • Provide mayors with leadership and management tools; and • Create a forum in which mayors can share ideas and information.

  16. For Immediate Release: Contact: Elena Temple Webb Friday, January 18, 2013 202-286-1100 / etemple@usmayors.org Lina Garcia 202-341-6113 / lgarcia@usmayors.org THE U.S. CONFERENCE OF MAYORS AND PHILIPS PARTNER TO SAVE CITIES MONEY, INCREASE ENERGY EFFICIENCY Washington, D.C. – The U.S. Conference of Mayors and Philips today announced a partnership to help mayors introduce more sustainable, energy-efficient lighting in their cities, save money and provide safer, more livable environments. Through the Mayors’ Lighting Partnership, Philips will work with cities to develop turnkey lighting solutions that integrate energy assessments, design, installation, financing, project management, maintenance and customer care. With state-of-the-art lighting technologies, such as LED, cities can lower their energy consumption substantially, while enhancing the security and lighting of streets, buildings and public spaces. “Philips has lit some of the most iconic images of Philadelphia, including the Ben Franklin Bridge, Avenue of the Arts, the “Love” sculpture and Boathouse Row. The U.S. Conference of Mayors welcomes the opportunity to partner with Philips to help mayors across the nation learn more about the many ways energy efficient lighting technology can benefit their cities,” said Michael A. Nutter, Mayor of Philadelphia and President of the U.S. Conference of Mayors. "As an innovator and leader in LED lighting, Philips has been working with cities for decades on ways to meet municipal lighting needs including increased safety, lowered maintenance and energy costs, and strategies for cities to re-define themselves and enhance the quality of life for their residents,” said Bruno Biasiotta, CEO and President of the Americas for Philips. “Iconic lighting can help boost tourism and bring new revenue streams to a city, while street lighting projects can help enhance public safety and add jobs. We believe in public-private partnerships and, through the Mayors’ Lighting Partnership, Philips is committed to working with the U.S. Conference of Mayors to show Mayors what light can do for their cities.” This Partnership enables mayors to access free energy assessments from Philips that will show cities how new lighting technologies save money, deliver greater energy efficiency and help them turn their iconic landmarks into destination points. Philips will also offer innovative financing with no up-front costs and a short payback period so the city’s savings cover the cost of implementation. Additional information on the Mayors’ Lighting Partnership is available at the Conference’s website at www.usmayors.org/MayorsLightingPartnership. “The U.S. Conference of Mayors has long been a leader in helping cities become more energy-efficient, from spearheading advocacy efforts for energy block grants and the Mayors' Climate Protection Agreement embraced by more than 1,000 mayors to passing a recent resolution endorsing the ’use of solid-state LED streetlight luminaries for lighting public streets and rights-of-way.’ We are pleased to join with Philips in the Mayors’ Lighting Partnership, which is certain to save money for cities and their taxpayers and reduce their energy consumption,” said Tom Cochran, U.S. Conference of Mayors CEO and Executive Director. US Conference of Mayors + Philips LightingPartnership • More than 1,000 Mayors passed resolution endorsing LED street lightings • Helps Mayors introduce more sustainable, energy lighting in their Cities • The partnership entitles Cities to receive free assessments • Philips will deliver turnkey lighting services to Cities

  17. US Conference of Mayors: Marketing Collateral Developed for this partnership Handed out at the Conference Available: www.usmayors/mayorslightingpartnership Dedicated landing page Information on partnership Video of announcement Press release from USCM Social media content On going events throughout the year.

  18. Case Study - City in Central Pennsylvania • City–wide street lighting project - 6878 Fixtures • Their project motivation : Revitalization, sustainability, safety, 10% of the fixtures were in-operable – but the city still paid the tariff • Including Labor/Installation/Recycling costs • $2.9M Total Project Cost • Turnkey Project Annual Financed Cost(9 yrs.) $356,000 • Energy savings $315,000 per year • Maintenance savings $52,000 annually • Total Annual Energy & Maintenance savings $367,000 • First Year Positive Cash Flow – with Utility Rebate $41,000 • Annual Positive Cash Flow Years 2-9 $11,000

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