Signify – Signify’s fourth quarter and full year results 2022

Signify reports full-year sales of EUR 7.5 billion, operational profitability of 10.1% and a free cash flow of EUR 445 million

 

Full year 2022¹

• Signify’s installed base of connected light points increased from 96 million at YE 21 to 114 million at YE 22
• Sales of EUR 7,514 million; nominal sales increase of 9.5% and CSG of 1.2%
• LED-based sales represented 83% of total sales (FY 21: 83%)
• Adj. EBITA margin of 10.1% (FY 21: 11.6%)
• Net income of EUR 532 million (FY 21: EUR 407 million)
• Free cash flow of EUR 445 million (FY 21: EUR 614 million)
• Net debt/EBITDA ratio of 1.3x (YE 21: 1.4x)

 

Fourth quarter 2022¹

• Sales of EUR 1,978 million; nominal sales decline of 1.5% and CSG of -8.8%
• Adj. EBITA margin of 10.2% (Q4 21: 13.2%)
• Net income of EUR 86 million (Q4 21: EUR 170 million)
• Free cash flow of EUR 364 million (Q4 21: EUR 257 million)

 

Dividend

• Proposal to increase its cash dividend to EUR 1.50 per share over 2022 (FY 21: EUR 1.45)

 

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company’s fourth quarter and full-year 2022 results.

“2022 was a year of exceptionally challenging conditions. The external environment grew increasingly more volatile throughout the year, leading us to adapt the company and our objectives accordingly. While margins and cash were impacted by inflation and supply chain disruption respectively, our connected lighting business and growth platforms grew to reach almost EUR 2 billion of sales. The relevance of our products and solutions was further heightened in 2022, as energy efficiency became even more urgent. This strengthened our competitive position as we executed on our strategic priorities. We brought new innovative and sustainable lighting solutions to our customers and continued to make progress towards doubling our impact on environment and society,” said Eric Rondolat, CEO of Signify.

 

“Looking ahead, we expect volatility to persist in the first half of 2023 and our performance to improve in the second half. While top-line growth will be difficult to predict, our key priority in 2023 will be to improve profitability and return to a free cash flow level in line with previous years. We will intensify our focus on managing the decline and profitability of our Conventional Products business, while further driving the transition to energy efficient, connected and sustainable lighting solutions. As we move forward, we remain committed to our strategy to invest and drive innovation in the lighting industry and so create a more sustainable and connected future for all.”

 

Brighter Lives, Better World 2025

In the fourth quarter, Signify completed the second year of its Brighter Lives, Better World 2025 sustainability program, making continued progress towards doubling its positive impact on the environment and society:

• Double the pace of the Paris agreement:
  • The cumulative carbon reduction over the value chain is on track to reach the 2025 target. This is mainly driven by energy-efficient and connected LED lighting, which reduce emissions in the use phase.
• Double Circular revenues to 32%:
  • Circular revenues were 29% and are on track, mainly driven by serviceable and circular luminaires.
• Double Brighter lives revenues to 32%:
  • Brighter lives revenues of 27%, on track to reach the 2025 target. The consumer well-being and safety & security portfolios continue to be the main contributors to Brighter lives revenues.
• Double the percentage of women in leadership positions to 34%:
  • The percentage of women in leadership positions was 28%. An improvement versus the end of last year, yet slightly off track to reach the 2025 target. This quarter, Signify focused on improving inclusive hiring practices and internal talent development. These actions help Signify realize its diversity ambitions.

 

In the fourth quarter, Signify received several external recognitions for its leadership in Sustainability and Climate action. Signify was included on the CDP’s Climate A List, and was included in the DJSI World Index for the 6th consecutive year.

 

Outlook

Signify continues to aim for growth, both organic and through selected acquisitions. Given the volatility of the current macro environment, Signify does not provide a comparable sales growth guidance for 2023. The company will focus its efforts on improving its 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

 

Capital allocation

Signify proposes a cash dividend of EUR 1.50 per share for 2022, in line with its policy to pay an increasing annual cash dividend per share year on year. The dividend proposal will be subject to approval at the Annual General Meeting of Shareholders (AGM) to be held on May 16, 2023. Further details will be provided in the agenda for the AGM.

In 2022, Signify reduced its net debt/EBITDA ratio to 1.3x. Excluding the acquisitions of Fluence and Pierlite, Signify reached its goal of reducing its net debt/EBITDA ratio to 1.0x at the end of 2022, down from 2.7x after the acquisition of Cooper Lighting in March 2020. Signify remains committed to maintaining a robust capital structure and an investment grade credit rating.

Signify will continue to invest in organic and inorganic growth opportunities in line with its strategic priorities.

 

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 fourth quarter and full-year 2022 results. A live audio webcast of the conference call will be available via the Investor Relations website.

 

Financial calendar

February 28, 2023: Annual Report 2022

May 3, 2023: First quarter results 2023

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

Full year 

Nominal sales increased by 9.5% to EUR 7,514 million, including a positive currency effect of 6.0%, largely driven by the appreciation of the USD, and a positive impact of 2.4% from the consolidation of Fluence and Pierlite. Comparable sales growth was 1.2%, benefiting from traction in the professional segment, partly offset by China, which was impacted by COVID-related measures, and softness in the consumer segment.

The Adjusted gross margin declined by 210 bps to 37.3%, mainly due to an adverse currency impact as price increases largely compensated input and energy cost inflation throughout the year. Adjusted indirect costs as a percentage of sales decreased by 70 bps to 28.9%, mainly driven by indirect cost savings.

Adjusted EBITA declined by 4.2% to EUR 762 million. Digital Solutions and Digital Products further increased their combined share of Signify’s Adjusted EBITA excluding ‘Other’ to 86% (2021: 82%). The Adjusted EBITA margin declined by 150 bps to 10.1%, mainly driven by the lower gross margin.

Total restructuring costs were EUR 64 million, acquisition-related charges were EUR 27 million and other incidental items were a net benefit of EUR 173 million. The other incidental items were mainly related to the gain on the disposal of non-strategic real estate assets. Net income increased by 31.0% to EUR 532 million, mainly driven by the gain on the disposal of non-strategic real estate assets, partly offset by a higher income tax expense, due to higher taxable income, and higher net financial expenses.

Fourth quarter 

Nominal sales declined by 1.5% to EUR 1,978 million, with a comparable sales decline of 8.8%. The decline is mainly attributable to a further deterioration of the Chinese market due to COVID-related disruptions, a weaker indoor professional business, continued softness in the consumer segment and lower growth in the OEM channel than anticipated. Nominal sales included a positive currency effect of 4.7%, mainly from the appreciation of the USD versus Q4 21, and a positive impact of 2.6% from the consolidation of Fluence and Pierlite.

The Adjusted gross margin decreased by 240 bps to 37.1%, mainly driven by an adverse currency impact. Price increases continued to offset higher input costs and the surge in energy costs. On a sequential basis, the gross margin has stabilized since Q2 22. Adjusted indirect costs as a percentage of sales increased by 50 bps to 28.3%, as indirect cost savings did not fully compensate lower sales volumes.

Adjusted EBITA decreased to EUR 202 million. The Adjusted EBITA margin decreased to 10.2%, mainly due to a negative currency impact of 150 bps and fixed cost under-absorption due to lower sales volumes. The negative currency impact was the combination of both the year-on-year weakening of the EUR versus the USD and CNY, and a continued, yet temporary, FX hedging headwind.

Total restructuring costs were EUR 47 million, acquisition-related charges were EUR 4 million and various incidental items were a net benefit of EUR 15 million. Net income decreased to EUR 86 million, as a result of lower income from operations and higher financial expenses. The higher financial expenses were mainly impacted by the Virtual Power Purchase Agreements, higher interest costs and the recognition of a monetary loss due to hyperinflation in Turkey.

The number of employees (FTE) decreased from 36,824 at the end of Q4 21 to 34,619 at the end of Q4 22. The year-on-year decrease is mostly related to factory personnel. The number of FTEs is affected by fluctuations in volume and seasonality.

 

Digital Solutions

Full year 

Nominal sales increased by 20.1% to 4,231 million, including a positive currency effect of 7.3% and a positive impact of 5.0% from the acquisitions of Fluence and Pierlite. Comparable sales growth was 7.8%, driven by growth across most markets, despite a slowdown in the fourth quarter. Connected-based sales were 22% of Digital Solutions’ total sales, stable with last year. Adjusted EBITA grew by 6.9% to EUR 424 million. The Adjusted EBITA margin declined by 130 bps to 10.0%, mainly due to a negative currency impact, partly offset by operating leverage from higher sales volumes.

Fourth quarter 

Nominal sales increased by 5.8% to EUR 1,105 million, including a positive currency effect of 6.2% and a positive impact of 5.3% from the acquisitions of Fluence and Pierlite. Comparable sales declined by 5.8% on the back of a high base of comparison in the fourth quarter of 2021 (Q4 21: 11.2%). The Chinese market continued to be impacted by COVID-related disruptions and the indoor professional business weakened. The Adjusted EBITA margin declined to 9.7%, due to under-absorption of fixed costs and an adverse currency impact.

 

Digital Products

 

Full year 

Nominal sales increased by 0.7% to EUR 2,469 million, benefiting from a positive currency effect of 4.4%. Comparable sales declined by 3.8%, due to lower consumer sales and a Chinese market that was impacted by COVID-related disruptions. Connected-based sales were 24% of Digital Products’ total sales, stable with 2021. The Adjusted EBITA margin declined to 12.0%, mainly due to a negative impact from currency, lower volumes and an adverse sales mix.

Fourth quarter 

Nominal sales declined to EUR 661 million, a comparable sales decline of 12.9%. The decline was mainly driven by lower consumer sales and COVID-related disruptions impacting the Chinese market. In addition, the company saw lower than expected growth in the OEM channel. The Adjusted EBITA margin decreased by 140 bps to 14.1%, as indirect cost savings were more than offset by fixed cost under-absorption due to lower volumes.

 

Conventional Products

Full year 

Nominal sales decreased by 7.9% to EUR 793 million, including a positive currency effect of 4.6%. Comparable sales declined by 12.6%, as lower volumes were partly offset by price increases. The Adjusted EBITA margin decreased to 14.6%, as an adverse currency impact, lower fixed cost coverage and higher input costs were not fully offset by price increases and indirect cost savings.

Fourth quarter 

Nominal sales decreased by 7.3% to EUR 203 million, benefiting from a positive currency effect of 4.2%. Comparable sales declined by 11.4%. The Adjusted EBITA margin decreased to 12.9%. Price increases compensated higher input and energy costs, yet indirect cost savings were not able to compensate one-off effects and an adverse currency impact.

 

Other

Full year 

‘Other’ represents amounts not allocated to the operating segments and includes costs related both to central R&D activities to drive innovation, and to Group enabling functions. Adjusted EBITA was EUR -75 million (2021: EUR -102 million). EBITA was EUR 138 million (2021: EUR -164 million). Restructuring costs and other incidental items were a net benefit of EUR 213 million (2021: EUR -62 million), largely related to the gain from the disposal of non-strategic real estate assets in Q2.

Fourth quarter 

EBITA was EUR -25 million (Q4 21: EUR -33 million). EBITA was EUR -16 million (Q4 21: EUR -42 million). Restructuring costs and other incidental items were a net benefit of EUR 8 million (Q4 21: EUR -9 million) during the quarter.

 

Sales by market

Full year 

Across most markets, the professional segment grew despite a slowdown in the fourth quarter, while demand in the consumer segment softened. In Europe, comparable sales grew by 3.9%. All European markets grew, except Eastern Europe, which was impacted by the war in Ukraine, and the United Kingdom. In the Americas, comparable sales grew by 3.2%, with a solid contribution from Cooper Lighting. In the Rest of the world, comparable sales declined by 1.5%, mainly due to China, the Middle East and South Korea. Global businesses’ comparable sales declined by 9.2%, mainly due to Klite, which was impacted by COVID-related disruptions in China.

Fourth quarter 

In most markets the consumer segment remained weak, while the professional segment softened on the back of a strong comparison base last year. In Europe, comparable sales declined by 6.5%, as most markets, except Spain and Italy, declined. In the Americas, comparable sales declined by 8.9%, mainly due to the US and Canada. In the Rest of the World, comparable sales declined by 9.2%, mainly due to China, which was impacted by COVID-related disruptions, and the Middle East. Global businesses’ comparable sales declined by 16.3%, mainly due to Klite.

 

Working capital

Fourth quarter 

Working capital decreased from EUR 820 million at the end of September 2022 to EUR 564 million at the end of December 2022. The lower working capital is the net result of a strong reduction of inventories, a notable reduction of receivables and a favorable impact from currency, only partly offset by lower payables and other working capital items. As a percentage of last twelve-month sales, working capital decreased by 340 bps to 7.5%. Including last twelve-month sales pro forma for Fluence and Pierlite, working capital declined by 330 bps to 7.4%.

Compared with December 2021, working capital increased by EUR 314 million. This increase was mostly driven by lower payables, as payments for the 2021 inventory build-up were settled. Lower payables were partly offset by lower receivables and lower inventories. As a percentage of last twelve-month sales, working capital increased by 390 bps to 7.5%. Including last twelve-month sales pro forma for Fluence and Pierlite, working capital increased by 380 bps to 7.4%.

 

Cash flow analysis

Full year 

Free cash flow was EUR 445 million, mainly impacted by higher working capital, partly offset by cash proceeds from the disposal of non-strategic real estate assets. Free cash flow included a restructuring payout of EUR 54 million (2021: EUR 86 million).

In 2022, Digital Solutions and Digital Products continued to increase their combined share of Signify’s free cash flow excluding ‘Other’ to 90% (2021: 85%). As a result, Signify continues to become less reliant on Conventional Products’ free cash flow generation. ‘Other’ free cash flow includes the Q2 22 proceeds from the disposal of non-strategic real estate assets.

Fourth quarter 

Free cash flow increased to EUR 364 million, mainly driven by a strong improvement of working capital which more than compensated a lower income from operations. Free cash flow included a restructuring payout of EUR 11 million (Q4 21: EUR 26 million).

 

Net debt and total equity

Fourth quarter 

Compared with the end of September 2022, the cash position increased by EUR 208 million to EUR 677 million, mainly driven by the positive free cash flow. Gross debt decreased by EUR 121 million to EUR 2,033 million, mostly due to the repayment of short-term debt. As a result of the lower gross debt and higher cash position, net debt decreased by EUR 329 million to EUR 1,356 million. Total equity decreased to EUR 3,065 million at the end of December 2022 (Q3 22: EUR 3,302 million), primarily due to currency translation, partly offset by net income.

Compared with the end of December 2021, the cash position decreased by EUR 174 million. This decrease was mainly driven by the acquisitions of Fluence and Pierlite, and the dividend payment, partly offset by free cash flow, which included cash proceeds from the disposal of non-strategic real estate assets. Gross debt remained relatively stable year on year. As a result, the net debt increased by EUR 200 million year on year. At the end of December 2022, the net debt/EBITDA ratio was 1.3x (Q4 21: 1.4x). Excluding the acquisitions of Fluence and Pierlite, Signify reached its goal of reducing its net debt/EBITDA ratio to 1.0x at the end of 2022, from 2.7x after the acquisition of Cooper Lighting in March 2020.

 

Other information

Appendix A – Selection of financial statements

Appendix B – Reconciliation of non-IFRS financial measures

Appendix C – Financial Glossary

 

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 fourth quarter and full-year 2022 results. A live audio webcast of the conference call will be available via the Investor Relations website.

 

Financial calendar

February 28, 2023 Annual Report 2022

May 3, 2023 First quarter results 2023

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

 

 

Appendix A – Financial statement information

A. Condensed consolidated statement of income

 

B. Condensed consolidated statement of comprehensive income

 

C. Condensed consolidated statement of financial position

 

D. Condensed consolidated statement of cash flows

 

Appendix B – Reconciliation of non-IFRS financial measures

 

 

 

Source
Signify