Correction: Signify reports second quarter sales of EUR 1.6 billion, operational profitability of 8.3% and a free cash flow of EUR 88 million

Press Release

July 28, 2023

Signify reports second quarter sales of EUR 1.6 billion, operational profitability of 8.3% and a free cash flow of EUR 88 million

Second quarter 2023¹

• Signify's installed base of connected light points increased from 117 million in Q1 23 to 119 million in Q2 23
• On track for all Brighter Lives, Better World 2025 sustainability program commitments
• Sales of EUR 1,644 million; nominal sales decline of -10.5% and CSG of -8.6%
• LED-based sales represented 84% of total sales (Q2 22: 84%)
• Adj. EBITA margin of 8.3% (Q2 22: 9.5%)
• Net income of EUR 45 million (Q2 22: EUR 248 million)
• Free cash flow of EUR 88 million (Q2 22: EUR 135 million)

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company’s second quarter 2023 results.

“In the second quarter, we saw continued softness in the consumer, indoor professional and OEM channels and a slower than anticipated recovery of the Chinese market. Against this backdrop, our actions to improve gross margin are paying off, although fixed costs reduction plans are not yet fully compensating for the volume decline. While our Digital Solutions and Conventional Products divisions demonstrated resilience in their bottom line, our Digital Products division was more exposed to these challenges,” said Eric Rondolat, CEO of Signify.

“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%. On the other hand, our free cash flow generation has and will continue to benefit from supply chain lead time improvements and effective working capital measures. We therefore expect our free cash flow generation to be at the higher end of the 6-8% range. To optimize our global operations, 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.”


Brighter Lives, Better World 2025

In the second quarter of the year, Signify remained on track to deliver on its Brighter Lives, Better World 2025 sustainability program commitments:

Double the pace of the Paris Agreement
Signify is on track to reduce emissions across the entire value chain by 40% against the 2019 baseline - double the pace required by the Paris Agreement. This is driven by Signify’s leadership in energy efficient and connected LED lighting solutions, which significantly reduce emissions during the use phase.

Double Circular revenues
Circular revenues remained stable at 29%, on track to reach the 2025 target of 32%. The main contribution is from serviceable and upgradeable luminaires, including the first serviceable Horticulture product family.

Double Brighter lives revenues
Brighter lives revenues increased to 28%, on track to reach the 2025 target of 32%. This was driven by the performance of Cooper’s tunable products supporting the consumer well-being portfolio and continued strength of the safety & security portfolio.

Double the percentage of women in leadership
The percentage of women in leadership positions continued to improve to 30%, on track to reach the 2025 target of 34%. This was mainly due to the acceleration of hiring practices for diversity across all levels.

Outlook

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%. On the other hand, our free cash flow generation has and will continue to benefit from supply chain lead time improvements and effective working capital measures. We therefore expect our free cash flow generation to be at the higher end of the 6-8% range.


Financial review

Second quarter
Nominal sales decreased by 10.5% to EUR 1,644 million, including a negative currency effect of 2.8%, mainly from CNY depreciation, and a positive effect of 0.9% from the consolidation of Fluence, Pierlite and Intelligent Lighting Controls (ILC). Comparable sales declined by 8.6%, as the indoor professional business, the consumer segment and the OEM channel continued to be weak.

The Adjusted gross margin increased by 220 bps to 38.9% driven by effective COGS management and price discipline. Adjusted indirect costs as a percentage of sales increased by 250 bps to 31.8%, as indirect costs did not keep pace with lower sales.

Adjusted EBITA was EUR 136 million. The Adjusted EBITA margin decreased by 120 bps to 8.3%, mainly due to under-absorption of fixed costs. Digital Products was mainly impacted, while Digital Solutions and Conventional Products both achieved Adjusted EBITA margin gains.

Restructuring costs were EUR 9 million, acquisition-related charges were EUR 3 million and incidental items had a negative impact of EUR 16 million.

Net income decreased to EUR 45 million, mainly due to lower income from operations and higher financial expenses, partly offset by lower income tax expense due to lower taxable income. In Q2 2022, income from operations included a EUR 184 million gain from the disposal of non-strategic real estate, while financial income included a benefit from a non-cash fair value adjustment of the Virtual Power Purchase Agreements.

The number of employees (FTE) decreased from 35,407 at the end of Q2 22 to 33,181 at the end of Q2 23. The year-on-year decrease is mostly related to a reduction of factory personnel due to lower production volumes. In general, the number of FTEs is affected by fluctuations in volume and seasonality.

¹ This press release contains certain non-IFRS financial measures and ratios, such as comparable sales growth, EBITA, adjusted EBITA and free cash flow, and related ratios, which are not recognized measures of financial performance or liquidity under IFRS. For a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures, see appendix B, Reconciliation of non-IFRS financial measures, of this press release.

For the full and original version of the press release click here
For the presentation click here

Conference call and audio webcast
Eric Rondolat (CEO) and Javier van Engelen (CFO) will host a conference call for analysts and institutional investors at 9:00 a.m. CET to discuss the second quarter 2023 results. A live audio webcast of the conference call will be available via the Investor Relations website.

Financial calendar 2023
October 27, 2023               Third quarter results 2023
January 26, 2024                Fourth quarter and full-year results 2023

For further information, please contact:
Signify Investor Relations
Thelke Gerdes
Tel: +31 6 1801 7131
E-mail: thelke.gerdes@signify.com

Signify Corporate Communications
Leanne Carmody
Tel: +31 6 3928 0201

E-mail: leanne.carmody@signify.com

Tom Lodge
Tel: +31 6 5252 5416
E-mail: tom.lodge@signify.com

About Signify
Signify (Euronext: LIGHT) is the world leader in lighting for professionals and consumers and lighting for the Internet of Things. Our Philips products, Interact connected lighting systems and data-enabled services, deliver business value and transform life in homes, buildings and public spaces. In 2022, we had sales of EUR 7.5 billion, approximately 35,000 employees and a presence in over 70 countries. We unlock the extraordinary potential of light for brighter lives and a better world. We achieved carbon neutrality in our operations in 2020, have been in the Dow Jones Sustainability World Index since our IPO for six consecutive years and were named Industry Leader in 2017, 2018 and 2019. News from Signify is located at the Newsroom, Twitter, LinkedIn and Instagram. Information for investors can be found on the Investor Relations page.

Important Information

Forward-Looking Statements and Risks & Uncertainties
This document and the related oral presentation contain, and responses to questions following the presentation may contain, forward-looking statements that reflect the intentions, beliefs or current expectations and projections of Signify N.V. (the “Company”, and together with its subsidiaries, the “Group”), including statements regarding strategy, estimates of sales growth and future operational results.

By their nature, these statements involve risks and uncertainties facing the Company and its Group companies, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement as a result of risks and uncertainties. Such risks, uncertainties and other important factors include but are not limited to: adverse economic and political developments, in particular the impacts of the Russia-Ukraine conflict, the energy crisis in Europe, the expected recovery trajectory of China post COVID, component shortages, cost inflation, rapid technological change, competition in the general lighting market, development of lighting systems and services, successful implementation of business transformation programs, impact of acquisitions and other transactions, reputational and adverse effects on business due to activities in Environment, Health & Safety, compliance risks, ability to attract and retain talented personnel, adverse currency effects, pension liabilities, and exposure to international tax laws.

Additional risks currently not known to the Group or that the Group has not considered material as of the date of this document could also prove to be important and may have a material adverse effect on the business, results of operations, financial condition and prospects of the Group or could cause the forward-looking events discussed in this document not to occur. The Group undertakes no duty to and will not necessarily update any of the forward-looking statements in light of new information or future events, except to the extent required by applicable law.

Market and Industry Information
All references to market share, market data, industry statistics and industry forecasts in this document consist of estimates compiled by industry professionals, competitors, organizations or analysts, of publicly available information or of the Group’s own assessment of its sales and markets. Rankings are based on sales unless otherwise stated.

Non-IFRS Financial Measures
Certain parts of this document contain non-IFRS financial measures and ratios, such as comparable sales growth, adjusted gross margin, EBITA, adjusted EBITA, free cash flow, and other related ratios, which are not recognized measures of financial performance or liquidity under IFRS. The non-IFRS financial measures presented are measures used by management to monitor the underlying performance of the Group’s business and operations and, accordingly, they have not been audited nor reviewed. Not all companies calculate non-IFRS financial measures in the same manner or on a consistent basis and these measures and ratios may not be comparable to measures used by other companies under the same or similar names. A reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures is contained in this document. For further information on non-IFRS financial measures, see “Chapter 18 Reconciliation of non-IFRS measures” in the Annual Report 2022.

Presentation
All amounts are in millions of euros unless otherwise stated. Due to rounding, amounts may not add up to totals provided. All reported data are unaudited. Unless otherwise indicated, financial information has been prepared in accordance with the accounting policies as stated in the Annual Report 2022.

Market Abuse Regulation
This press release contains information within the meaning of Article 7(1) of the EU Market Abuse Regulation.