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.
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
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.
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.
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.
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.
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.
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’ 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
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 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
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
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).
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
Costs that are directly triggered by the acquisition of a company, such as transaction costs, purchase accounting related costs and integration-related expenses.
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.
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.
Income from operations.
Income from operations excluding amortization and impairment of acquisition-related intangible assets and goodwill.
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 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.
Sales minus cost of sales.
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.
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.
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.
Research and development expenses.
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.
Selling, general and administrative expenses.
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).
More information on Signify: See the full profile on EMR Executive Services
More information on Eric Rondolat (CEO, Signify): See the full profile on EMR Executive Services
More information on Javier van Engelen (CFO, Signify): See the full profile on EMR Executive Services
More information on Signify’s Sustainability Program (Brighter Lives, Better World 2025): See the full profile on EMR Executive Services + https://www.signify.com/global/sustainability/brighter-lives-better-world-2025
More information on Maurice Loosschilder (Head of Sustainability, Signify): See the full profile on EMR Executive Services
EMR Additional Notes:
- Major financial KPI’s since 2017 are available on EMR Executive Services under “Financial Results” and comparison with peers under “Market Positioning”
- Companies’ full profile on EMR Executive Services are based on their official press releases, quarterly financial reports, annual reports and other official documents.
- All members of the Executive Committee and of the Board have their full profile on EMR Executive Services
- The Signify Q1 2023 Presentation can be found here: https://www.signify.com/static/quarterlyresults/2023/q1_2023/signify-first-quarter-results-2023-presentation.pdf
- The Signify Q4 2022 Presentation can be found here: https://www.signify.com/static/quarterlyresults/2022/q4_2022/signify-fourth-quarter-and-full-year-results-2022-presentation.pdf
- The Signify Business Highlights 2022 Video can be found here: https://www.signify.com/global/our-company/news/press-releases/2023/20230127-signify-fourth-quarter-and-full-year-results-2022
- The Signify Annual Report 2022 can be found here: https://www.signify.com/static/2022/signify-annual-report-2022.pdf