Q3 results, October 23, 2020, 07:00 CET

Press Release

October 23, 2020

Signify reports third quarter sales of EUR 1.7 billion, operational profitability of 11.5% and free cash flow of EUR 214 million

Third quarter 20201

• Signify's installed base of connected light points increased from 64 million in Q2 20 to 71 million in Q3 20
• Sales of EUR 1,728 million, nominal sales growth of 12.1% and CSG of -8.3%
• LED-basedsales represented 82% of total sales (Q3 19: 81%)
• Adj. indirect costs down EUR 22 million, or -4.9% excl. FX effects and changes in scope2
• Adj. EBITA margin increased by 50 bps to 11.5%, including currency impact of -30 bps
• Adj. EBITA margin of the growing profit engines increased by 130 bps to 12.3%
• Net income of EUR 90 million (Q3 19: EUR 74 million)
• Free cash flow increased to EUR 214 million (Q3 19: EUR 45 million)
• Cooper Lighting integration and synergies ahead of plan
• Achieved carbon neutrality and set course to double positive impact on environment and society in 2025
• Debt prepayment of EUR 350 million to reduce overall gross debt position; net leverage at 2.2x

Eindhoven, the Netherlands - Signify (Euronext: LIGHT), the world leader in lighting, today announced the company's 2020 third quarter results. "We are very proud of our carbon neutrality achievement in Q3 and of the launch of our new sustainability program aimed at doubling our positive impact on the environment and society in 2025. Amidst difficult market dynamics caused by the COVID-19 pandemic, this financial quarter we are reporting yet another resilient performance underpinned by our consumer and connected lighting. Our gross margin improvement, through rigorous price management, translated into a higher operational margin. Our discipline in working capital management allowed us to generate a solid free cash flow for the quarter, while as previously announced, we reduced our debt by EUR 350 million," said CEO Eric Rondolat. "Given the acceleration of the pandemic in many regions, we remain cautious about market developments, but confident in our ability to further adapt, which we have demonstrated since the beginning of the year. Our teams remain focused on making continued good progress on the integration of Cooper Lighting and Klite, while relentlessly driving our growth platforms to develop new business opportunities in line with our strategy."

Outlook

Given recent developments of the pandemic, Signify does not provide financial guidance for full year 2020. Signify remains confident in the underlying resilience of its businesses and operating model, and that its liquidity needs are well covered by the financial framework it has in place. During the virtual Capital Markets Day 2020,

which is scheduled on December 9, Signify will provide more details on its expectations for the medium-term.

¹This 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.

2Changes in scope relate to the consolidation of Cooper Lighting and Klite

2

Financial review

	Third quarter				Nine months
2019	2020	change	in millions of EUR, except percentages	2019	2020	change
		-8.3%	Comparable sales growth			-15.3%
		-3.6%	Effects of currency movements			-1.2%
		24.0%	Consolidation and other changes			19.3%
1,542	1,728	12.1%	Sales	4,497	4,624	2.8%
585	689	17.8%	Adjusted gross margin	1,699	1,801	6.0%
37.9%	39.9%		Adj. gross margin (as % of sales)	37.8%	39.0%
-377	-443		Adj. SG&A expenses	-1,155	-1,237
-65	-77		Adj. R&D expenses	-201	-211
-442	-520	-17.7%	Adj. indirect costs	-1,356	-1,448	-6.8%
28.7%	30.1%		Adj. indirect costs (as % of sales)	30.2%	31.3%
169	199	17.7%	Adjusted EBITA	416	444	6.6%
11.0%	11.5%		Adjusted EBITA margin	9.3%	9.6%
-31	-38		Adjusted items	-80	-93
138	161	16.6%	EBITA	336	351	4.4%
114	131	14.9%	Income from operations (EBIT)	263	261	-0.7%
-11	-16		Net financial income/expense	-32	-42
-28	-25		Income tax expense	-63	-21
74	90	21.0%	Net income	169	198	17.3%
45	214		Free cash flow	220	484
0.58	0.67		Basic EPS (€)	1.34	1.53
27,337	37,057		Employees (FTE)	27,337	37,057

Third quarter

Sales amounted to EUR 1,728 million, a nominal increase of 12.1%. Adjusted for 3.6% negative currency effects and 24.0% consolidation, comparable sales decreased by 8.3%. LED-based sales decreased by 8.2% and now account for 82% of total sales. The adjusted gross margin increased by 200 bps to 39.9%, including a currency effect of -10 bps, largely as a result of solid pricing management. The adjusted indirect costs increased by EUR 78 million. Excluding currency effects and changes in scope, the adjusted indirect costs are down EUR 22 million, or 4.9%. Adjusted EBITA amounted to EUR 199 million, a 17.7% increase compared to the same period last year. The Adjusted EBITA margin improved by 50 bps to 11.5%, mainly driven by the robust gross margin improvement. Total restructuring costs were EUR 25 million and acquisition-related charges and other incidentals were EUR 13 million. Net income increased from EUR 74 million last year to EUR 90 million in Q3 20. Free cash flow amounted to EUR 214 million, reflecting profitability improvements, strong working capital management and the consolidation of Cooper Lighting and Klite.

				3
Growing profit engines
In percentages	CSG		Adj. EBITA margin
	Q3 2019	Q3 2020	Q3 2019	Q3 2020
Digital Solutions	1.7%	-11.2%	12.3%	11.7%
Digital Products	0.1%	-2.0%	9.4%	13.1%
Growing profit engines	1.0%	-7.9%	11.0%	12.3%

Third quarter

Comparable sales of the growing profit engines declined by 7.9% due to the ongoing spread of COVID-19 and the measures taken by governments and customers. Despite the decline in top-line, the growing profit engines have improved the Adjusted EBITA margin by 130 bps to 12.3%, with a particularly strong margin improvement in the Digital Products division, driven by an increase in gross margin and indirect cost savings.

Digital Solutions

	Third quarter				Nine months
2019	2020	change	in millions of EUR, unless otherwise indicated	2019	2020	change
		-11.2%	Comparable sales growth			-16.0%
698	916	31.2%	Sales	1,929	2,336	21.1%
86	107	24.4%	Adjusted EBITA	174	225	29.6%
12.3%	11.7%		Adjusted EBITA margin	9.0%	9.6%
86	78	-8.7%	EBITA	151	155	2.8%
63	50	-21.3%	Income from operations (EBIT)	84	72	-14.0%

Third quarter

Sales amounted to EUR 916 million, a nominal increase of 31.2% as a result of the consolidation of Cooper Lighting. Comparable sales declined by 11.2% and reflects a continued difficult market environment, albeit an improved trend compared with last quarter. The most severely impacted markets were Latin America, Canada, India, Southeast Asia, Italy and France. LED-based sales accounted for 92% of total sales including Cooper Lighting. Connected-based sales represented 27% of total sales excluding Cooper Lighting. Adjusted EBITA amounted to EUR 107 million, resulting in an Adjusted EBITA margin of 11.7%. Adjusted EBITA margin remained stable year-on-year when including the pro-forma Cooper Lighting financials in Q3 19.

Digital Products

	Third quarter				Nine months
2019	2020	change	in millions of EUR, unless otherwise indicated	2019	2020	change
		-2.0%	Comparable sales growth			-12.6%
565	575	1.9%	Sales	1,681	1,577	-6.2%
53	76	42.2%	Adjusted EBITA	145	167	15.2%
9.4%	13.1%		Adjusted EBITA margin	8.6%	10.6%
35	73	111.3%	EBITA	118	154	31.0%
33	71	115.7%	Income from operations (EBIT)	114	149	30.9%

Third quarter

Sales amounted to EUR 575 million, a nominal increase of 1.9% and a decrease of 2.0% on a comparable basis. Connected-based sales represented 21% of total sales. While demand in the OEM and Professional channels continued to be impacted by the measures taken by governments and customers, sales in the consumer channel showed a strong performance, particularly in the connected home category for which sell-out rates remained robust. Adjusted EBITA amounted to EUR 76 million, resulting in an improvement in the Adjusted EBITA margin of 370 bps driven by a positive mix impact from connected home, solid price management and continued bill-of- material savings, and the ongoing successful integration of Klite.

4

Conventional Products

	Third quarter				Nine months
2019	2020	change	in millions of EUR, unless otherwise indicated	2019	2020	change
		-11.0%	Comparable sales growth			-18.1%
274	233	-15.0%	Sales	869	701	-19.4%
53	42	-21.4%	Adjusted EBITA	172	124	-28.0%
19.4%	17.9%		Adjusted EBITA margin	19.8%	17.7%
41	35	-13.7%	EBITA	152	119	-21.5%
41	35	-13.7%	Income from operations (EBIT)	151	119	-21.4%

Third quarter

Sales amounted to EUR 233 million, a comparable decrease of 11.0%. Despite the impact of the pandemic, Conventional Products showed a solid performance mainly as a result of strong demand for consumer lamps, UV-C lighting and horticulture lighting. The division continued to gain market share and generate solid free cash flow.

Other

Third quarter

Other represents amounts not allocated to the operating segments and includes certain costs related to central R&D activities to drive innovation as well as group enabling functions. Adjusted EBITA amounted to EUR -26 million (Q3 19: EUR -23 million). EBITA amounted to EUR -25 million (Q3 19: EUR -23 million). Restructuring costs and other incidentals were insignificant during the quarter.

Sales by market

	Third quarter				Nine months
2019	2020	Change	CSG	in millions of EUR, except percentages	2019	2020	change	CSG
553	523	-5.3%	-3.8%	Europe	1,585	1,431	-9.8%	-8.8%
433	659	52.1%	-13.2%	Americas	1,295	1,758	35.7%	-17.6%
466	404	-13.2%	-8.2%	Rest of the World	1,356	1,050	-22.5%	-20.7%
91	141	56.2%	1.7%	Global businesses	261	385	47.3%	-9.9%
1,542	1,728	12.1%	-8.3%	Total	4,497	4,624	2.8%	-15.3%

In 2020 Americas include Cooper Lighting and Global businesses include Klite

Third quarter

Comparable sales in Europe decreased by 3.8%, following gradual recoveries in markets such as the Benelux, Nordics and Germany. Comparable sales in the Americas decreased by 13.2% reflecting continued challenging market conditions. In the Rest of the World, comparable sales declined by 8.2%, with a negative impact in particular from India, Indonesia and Southeast Asia. In China, demand continues to show signs of recovery.