Signify – Signify’s first quarter results 2023

Signify reports first quarter sales of EUR 1.7 billion, operational profitability of 8.9% and a free cash flow of EUR 51 million

First quarter 2023¹

• Signify’s installed base of connected light points increased from 114 million in Q4 22 to 117 million in Q1 23
• On track to double the pace of the Paris Agreement
• Sales of EUR 1,678 million; nominal sales decline of -6.1% and CSG of -9.1%
• LED-based sales represented 82% of total sales (Q1 22: 84%)
• Adj. EBITA margin of 8.9% (Q1 22: 10.5%)
• Net income of EUR 28 million (Q1 22: EUR 87 million)
• Free cash flow of EUR 51 million (Q1 22: EUR -189 million)

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

“Largely in line with expectations, Q1 2023 saw persistent weakness in the consumer segment and in the indoor professional business, as well as a slowdown in OEM sales. At the same time, we made progress with our 2023 priorities, such as continued price discipline and effective COGS management, which resulted in an improvement in our gross margin. The Adjusted EBITA margin performance of our Conventional Products division returned to historical levels. The company’s free cash flow further recovered, driven by working capital improvements. While our adjusted EBITA margin was impacted by lower fixed cost absorption, we remain steadfastly focused on applying our customary cost discipline,” said Eric Rondolat, CEO of Signify.

“While we expect the remainder of H1 2023 to remain challenging, we continue to see the potential for an improved second half. Given the structural improvements in our gross margin and free cash flow generation, as well as our intensified measures to reduce fixed costs, we confirm our guidance for the full year.”

Brighter Lives, Better World 2025

In the first quarter of the year, Signify was on track for all of its Brighter Lives, Better World 2025 sustainability program commitments that contribute to doubling its positive impact on the environment and society.

• Double the pace of the Paris agreement:

Cumulative carbon reduction over the value chain is on track. This is mainly driven by energy-efficient and connected LED lighting, which drive emission reductions in the use phase.

• Double our Circular revenues to 32%:

Circular revenues were 29%, stable versus the previous quarter, yet on track to reach the 2025 target. Circular revenues continue to be driven by serviceable and circular luminaires.

• Double our Brighter lives revenues to 32%:

Brighter lives revenues were 27%, on track to reach the 2025 target. The main contribution continues to be the consumer well-being and Safety & security portfolios.

• Double the percentage of women in leadership positions to 34%:

The percentage of women in leadership positions was 29%, an increase versus the previous quarter and on track to reach the 2025 target. The improvement was mainly driven by new external hires and the internal promotion of women.

Outlook

Signify confirms its guidance for 2023. The company continues to focus its efforts on improving the Adjusted EBITA margin and free cash flow. Signify expects for 2023:

• An Adjusted EBITA margin in the range of 10.5-11.5%
• Free cash flow between 6-8% of sales

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 first quarter 2023 results. A live audio webcast of the conference call will be available via the Investor Relations website.

Financial calendar

May 16, 2023: Annual General Meeting

May 18, 2023: Ex-dividend date

May 19, 2023: Dividend record date

June 5, 2023: Dividend payment date

July 28, 2023: Second quarter and half-year results 2023

October 27, 2023: Third quarter results 2023

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.

Financial review

First quarter

Nominal sales decreased by 6.1% to EUR 1,678 million, including a positive currency effect of 0.9% and a positive effect of 2.1% from the consolidation of Fluence, Pierlite and Intelligent Lighting Controls. Comparable sales declined by 9.1%, driven by continued weakness in the indoor professional business, the consumer segment and the OEM channel. In China, the market was still impacted by COVID-related disruptions, but the company started to see increased economic activity following the reopening.

The Adjusted gross margin increased by 100 bps to 39.3%, mainly driven by continued price discipline and effective COGS management. Adjusted indirect costs as a percentage of sales increased by 240 bps to 31.9%, as the reduction of indirect costs was not sufficient to compensate lower sales.

Adjusted EBITA decreased to EUR 149 million. The Adjusted EBITA margin decreased by 160 bps to 8.9%, mainly due to under-absorption of fixed costs and an adverse currency effect from the weakening of emerging market currencies, the strengthening of the US Dollar, and a one-off impact from the implementation of a new hedging policy.

Restructuring costs were EUR 47 million and were mainly related to Conventional Products. These restructuring costs were in line with the strategy to adjust Conventional Products’ footprint to declining sales. Acquisitionrelated charges were EUR 3 million and incidental items were EUR 16 million, mainly related to additions to environmental provisions.

Net income decreased to EUR 28 million, mainly due to lower income from operations and higher financial expenses, partly offset by lower income tax expense due to lower taxable income and a release of tax liabilities.

The higher financial expenses were mainly related to a non-cash fair value adjustment of the Virtual Power Purchase Agreements due to lower energy prices, and higher interest costs

The number of employees (FTE) decreased from 36,884 at the end of Q1 22 to 34,408 at the end of Q1 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.

Digital Solutions

First quarter

Nominal sales decreased by 3.0% to EUR 951 million, including a positive currency effect of 1.7% and a positive effect of 4.0% from the consolidation of Fluence, Pierlite and Intelligent Lighting Controls. Comparable sales declined by 8.7% on the back of a high base of comparison (Q1 22: +16.9%), and weaker indoor professional and horticulture sales. The Adjusted EBITA margin declined by 100 bps to 8.7%, as gross margin improvements were more than offset by under-absorption of fixed costs and an adverse currency effect.

Digital Products

First quarter

Nominal sales decreased by 10.6% to EUR 537 million, including a negative currency effect of 0.4%. Comparable sales declined by 10.1%, due to continued weakness in the consumer connected and OEM businesses, which was partly compensated by higher sales of LED lamps and luminaires. The Adjusted EBITA margin declined by 450 bps to 8.3%, mainly reflecting under-absorption of fixed costs due to lower sales volumes, partly offset by a positive impact from price and sales mix.

Conventional Products

First quarter

Nominal sales decreased by 7.6% to EUR 186 million, including a positive currency effect of 0.9%. Comparable sales declined by 8.5%, as lower volumes were partially compensated by price increases. The Adjusted EBITA margin increased by 650 bps to 22.5%, mainly reflecting strong price discipline and a benefit from one offs. EBITA included EUR 47 million of adjusted items, mainly related to restructuring charges and additions to environmental provisions.

Other

First quarter

‘Other’ represents amounts not allocated to operating segments and includes costs related both to central R&D activities to drive innovation, and to Group enabling functions. Adjusted EBITA was EUR -19 million (Q1 22: EUR -17 million) and EBITA was EUR -22 million (Q1 22: EUR -18 million). Restructuring costs increased to EUR 3 million (Q1 22: EUR 1 million) and incidental items were a net benefit of EUR 1 million.

Update US legal case

In reference to the legal case disclosed in its Q3 2022 press release, Signify received a decision from the trial judge on April 26th, reducing the jury’s award from USD 100 million to approximately USD 46 million and Signify’s allocated share to approximately USD 42 million. Both the legal provision and the insurance cover asset have been updated in the balance sheet of the company as per 31 March 2023 without any net P&L impact.

Signify has a comprehensive global liability insurance and has confirmation that the case is fully covered without reservation of rights, including interest and other costs. Signify will continue to exercise all its rights to appeal this verdict.

Sales by market

First quarter

In the first quarter, most markets saw continued weakness in the consumer segment and softness in the indoor professional segment, in addition to a high base of comparison. In Europe, comparable sales declined by 6.2%, mainly due to Germany, the Benelux and the UK. In the Americas, comparable sales declined by 10.9%, mainly due to the US and Canada. In the Rest of the World, comparable sales declined by 6.8%, as most markets declined. China was still impacted by COVID-related disruptions. Global businesses’ comparable sales declined by 16.4%, mainly due to Klite.

Working capital

First quarter

Working capital slightly increased from a recurring seasonal low of EUR 564 million at the end of December 2022 to EUR 617 million at the end of March 2023. The higher working capital is driven by a reduction in payables, only partly offset by lower receivables and lower inventories. As a percentage of last twelve-month sales, working capital increased by 80 bps to 8.3%. Including last twelve-month sales pro forma for Fluence and Pierlite, working capital increased by 90 bps to 8.3%.

Compared with March 2022, working capital increased by EUR 58 million. This increase is mainly related to lower payables and other working capital items, partly offset by lower inventories and receivables. As a percentage of last twelve-month sales, working capital increased by 40 bps to 8.3%. Including last twelve-month sales pro forma for Fluence and Pierlite, working capital also increased by 40 bps.

Cash flow analysis

First quarter

Free cash flow was EUR 51 million, mainly due to a lower cash outflow from working capital, which benefited from improved demand planning reliability and stricter inventory discipline. The increase in additions to provisions was mostly related to restructuring provisions in Conventional Products. Free cash flow included a restructuring payout of EUR 21 million (Q1 22: EUR 14 million).

Net debt and total equity

First quarter

Compared with the end of December 2022, both the cash and gross debt positions remained relatively stable. The cash position increased by EUR 17 million to EUR 694 million, while gross debt declined by EUR 8 million to EUR 2,025 million. As a result, net debt decreased by EUR 25 million to EUR 1,331 million. Total equity slightly reduced to EUR 3,053 million at the end of March 2023 (Q4 22: EUR 3,065 million), primarily due to currency translation results, partly offset by net income.

Compared with the end of March 2022, the cash position increased by EUR 68 million, while gross debt increased by EUR 21 million. As a result, the net debt decreased by EUR 47 million year on year. At the end of March 2023, the net debt/EBITDA ratio was 1.4x (Q1 22: 1.6x).

Other information

Appendix A – Selection of financial statements

Appendix B – Reconciliation of non-IFRS financial measures

Appendix C – Financial glossary

Appendix A – Financial statement information

Appendix B – Reconciliation of non-IFRS financial measures

Appendix C – Financial glossary

Acquisition-related charges
Costs  that  are  directly  triggered  by  the  acquisition of  a  company,  such  as  transaction  costs,  purchase accounting related  costs  and  integration-related expenses.
Adjusted EBITA
EBITA  excluding  restructuring  costs,  acquisition related charges, and other incidental charges.
Adjusted EBITA margin
Adjusted  EBITA  divided  by  sales  to  third  parties (excluding intersegment).
Adjusted gross margin
Gross  margin,  excluding  restructuring  costs, acquisition-related  charges,  and  other  incidental items attributable to cost of sales.
Adjusted indirect costs
Indirect  costs,  excluding  restructuring  costs, acquisition-related  charges,  and  other  incidental items attributable to indirect costs.
Adjusted R&D expenses
Research  and  development  expenses,  excluding restructuring costs, acquisition-related charges, and other incidental items attributable  to  research and development expenses.
Adjusted SG&A expenses
Selling,  general  and  administrative  expenses, excluding  restructuring  costs,  acquisition-related charges, and  other incidental items attributable to selling, general and administrative expenses.
Brighter lives revenues
Percentage  of  total  revenues  coming  from  all products,  systems  and  services  contributing  to Food  availability,  Safety  & security,  or  Health  & well-being.
Changes in scope
Consolidation effects related to acquisitions.
Circular revenues
Percentage  of  total  revenues  coming  from products,  systems  and  services  designed  for  a circular  economy, categorized as  serviceable luminaires  (incl.  3D-printing),  circular  components, intelligent systems, or circular services.
Comparable sales growth (CSG)
The period-on-period growth in sales excluding the effects  of  currency  movements  and  changes  in consolidation and other changes.
EBIT
Income from operations.
EBITA
Income  from  operations  excluding  amortization and  impairment  of  acquisition-related  intangible assets and goodwill.
EBITDA
Income  from  operations  excluding  depreciation, amortization,  and  impairment  of  non-financial assets.
Effects  of  changes  in  consolidation  and  other changes
In  the  event  a  business  is  acquired  (or  divested), the  impact  of  the  consolidation  (or  deconsolidation) on the Group’s figures is included (or excluded) in the calculation of the comparable sales growth  figures.  Other  changes  include regulatory changes  and  changes  originating  from  new accounting standards.
Effects of currency movements
Calculated  by  translating  the  foreign  currency financials  of  the  previous  period  and  the  current period  into  euros  at  the  same  average  exchange rates.
Employees
Employees  of  Signify  at  the  end  of  the  period, expressed on a full-time equivalent (FTE) basis.
Free cash flow
Net cash provided by operating activities minus net capital  expenditures.  Free  cash  flow  includes interest paid and income taxes paid.
Gross margin
Sales minus cost of sales.
Incidental charges
Any item with an income statement impact (loss or gain) that is deemed to be both significant and not part  of  normal  business  activity.  Other  incidental items may extend over several quarters within the same financial year.
Indirect costs
The  sum  of  selling,  general  and  administrative expenses and R&D expenses.
Net capital expenditures
Additions of intangible assets, capital expenditures on  property,  plant  and  equipment  and  proceeds from disposal of property, plant and equipment.
Net debt
Short-term  debt,  long-term  debt  minus  cash  and cash equivalents.

Net leverage ratio
The  ratio  of  consolidated  reported  net  debt  to consolidated  reported  EBITDA  for  the  purpose  of calculating the financial covenant.
R&D expenses
Research and development expenses.
Restructuring costs
The  estimated  costs  of  initiated  reorganizations which  have  been  approved  by  the  company,  and generally involve the realignment of certain parts of the  organization.  Restructuring  costs  include  costs for  employee  termination  benefits  for  affected employees  and  other  costs  directly  attributable  to the restructuring, such as impairment of assets and inventories.
SG&A expenses
Selling, general and administrative expenses.
Working capital
The  sum  of  inventories,  trade  and  other receivables,  other  current  assets,  derivative financial  assets minus  the  sum  of  trade  and  other payables,  derivative  financial  liabilities  and  other current  liabilities  (excluding  dividend-related payables).

Source
Signify