Signify N.V., - Signify reports third quarter sales of EUR 1.6 billion, operational profitability of 11.1% and a free cash flow of EUR 85 million

Press Release

October 29, 2021

Signify reports third quarter sales of EUR 1.6 billion, operational profitability of 11.1% and a free cash flow of EUR 85 million

Third quarter 20211

• Signify's installed base of connected light points increased from 86 million in Q2 21 to 92 million in Q3 21
• Sales of EUR 1,643 million; Comparable Sales Growth of -4.8%, impacted by global supply chain disruptions
• Order book increased by 90% in Q3 21 vs. Q3 20
• LED-basedsales represented 83% of total sales (Q3 20: 82%)
• Adj. EBITA margin of 11.1% (Q3 20: 11.5%)
• Net income of EUR 94 million (Q3 20: EUR 90 million)
• Free cash flow of EUR 85 million (Q3 20: EUR 214 million)
• Net debt/EBITDA ratio of 1.8x (Q3 20: 2.2x)

Eindhoven, the Netherlands - Signify (Euronext: LIGHT), the world leader in lighting, today announced the company's third quarter 2021 results.

"I am encouraged by the strong demand for connected lighting and the performance of our growth platforms in what has been a particularly disrupted external environment this quarter. This is evidenced by a healthy order book, which increased by 90% in comparison to the same period last year. At the same time, global supply chain issues caused by component shortages and logistics challenges impaired our ability to meet the high demand. We swiftly took multiple mitigating actions, while simultaneously managing our prices to offset the structural part of the inflation. These actions have enabled us to deliver a double digit adjusted EBITA margin, while continuing to invest in our digital initiatives," said Eric Rondolat, CEO of Signify.

"With the understanding we have today of the external uncertainties for Q4, we are set to achieve the lower end of our 2021 guidance range. We have the plans in place to deliver backlog orders and minimize disruption to our customers. We believe that these unprecedented supply chain issues are transitory and are confident in our ability to convert demand into sales growth as the situation stabilizes. The fundamentals of our business are stronger than ever, driven by the ever-growing need for energy-efficient and digital lighting technologies."

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.

Brighter Lives, Better World 2025

In the third quarter of the year, Signify celebrated one year of carbon neutrality in its operations and has continued to progress on all of the Brighter Lives, Better World 2025sustainability program commitments:

• Double the pace of the Paris agreement:
  Cumulative carbon reduction over value chain was 48 million tonnes, ahead of track. This was mainly achieved by an accelerated shift to energy-efficient and connected LED lighting in the first three quarters of 2021, thereby decreasing Signify's carbon emissions in the use phase.
• Double our circular revenues to 32%:
  Circular revenues increased to 24%, compared with the 2019 baseline of 16%. Signify is on track for the 2025 target of 32%. This is mainly driven by the strong portfolio of serviceable luminaires and the further expansion of both the home luminaire and modular businesses.
• Double our brighter lives revenues to 32%:
  Brighter lives revenues were 26%, making good progress towards the 2025 target of 32%. This positive trend can be explained by a strong contribution of the wellbeing portfolio, including 'quality of light' EyeComfort, Hue and WiZ products.
• Double the percentage of women in leadership to 34%:
  The percentage of women in leadership positions was 25%, stable compared with last quarter, while slightly below our 2021 intermediary step to reach the 2025 target of 34%. In Q3, Signify signed the UN Women Empowerment Principles to emphasize its commitment to gender equality and it continued to diversify the talent pipeline while ensuring equal opportunities, fairness and impartiality for all.

Outlook

Signify expects that electronic components shortages and logistics disruptions will continue to have an impact over the coming months. As a result, and with no further deterioration of the supply chain, the company expects to end at the lower end of its 2021 guidance ranges of 3-6% comparable sales growth, an adj. EBITA margin of 11.5-12.5% and free cash flow exceeding 8% of sales.

Financial review

	Third quarter				Nine months
2020	2021	change	in millions of EUR, except percentages	2020*	2021	change
		-4.8%	Comparable sales growth			3.6%
		-0.3%	Effects of currency movements			-3.6%
		0.1%	Consolidation and other changes			4.9%
1,728	1,643	-4.9%	Sales	4,624	4,852	4.9%
689	634	-8.1%	Adjusted gross margin	1,801	1,909	6.0%
39.9%	38.6%		Adj. gross margin (as % of sales)	39.0%	39.3%
-443	-415		Adj. SG&A expenses	-1,237	-1,262
-77	-68		Adj. R&D expenses	-211	-210
-520	-483	7.1%	Adj. indirect costs	-1,448	-1,473	-1.7%
30.1%	29.4%		Adj. indirect costs (as % of sales)	31.3%	30.4%
199	182	-8.4%	Adjusted EBITA	444	530	19.3%
11.5%	11.1%		Adjusted EBITA margin	9.6%	10.9%
-38	-34		Adjusted items	-93	-130
161	149	-7.8%	EBITA	351	399	13.9%
131	118	-9.9%	Income from operations (EBIT)	261	309	18.3%
-16	-4		Net financial income/expense	-42	-20
-25	-20		Income tax expense	-21	-52
90	94	4.8%	Net income	198	236	19.3%
214	85		Free cash flow	484	357
0.67	0.72		Basic EPS (€)	1.53	1.84
37,057	37,069		Employees (FTE)	37,057	37,069

* For comparability purposes, note that figures for the period only include results of Cooper Lighting since March 2020.

Third quarter

In an environment which was hampered by supply chain disruptions, total sales declined by 4.9% to EUR 1,643 million and comparable sales decreased by 4.8%. Given its international production footprint and supplier base, Signify has been materially exposed to the global shortage of electronic components, regional lockdowns and global logistics challenges, including container shortages and port congestions. These disruptions negatively impacted our top line by more than EUR 100 million during the quarter, mainly affecting the Digital Solutions and Digital Products divisions.

The adjusted gross margin decreased by 130 bps to 38.6%. While pricing and positive sales mix compensated for structural input cost inflation, the decrease was mainly attributable to transitory effects caused by higher logistics costs and occasional spot buys of components. Adjusted indirect costs decreased by EUR 37 million, driven by structural cost savings and one-off effects in the previous year, including provisions for the reimbursement of solidarity contributions to employees.

Adjusted EBITA was EUR 182 million, an 8.4% decrease compared with last year. The Adjusted EBITA margin remained strong at 11.1%, as the lower gross margin was largely offset by indirect cost savings, despite continued investments in digital initiatives.

Total restructuring costs were EUR 19 million, acquisition-related charges were EUR 10 million and other incidental costs were EUR 5 million. Net income increased to EUR 94 million as lower income from operations was more than compensated by lower financial expenses and a lower income tax expense.

Digital Solutions

	Third quarter				Nine months
2020	2021	change	in millions of EUR, unless otherwise indicated	2020*	2021	change
		-7.3%	Comparable sales growth			0.5%
916	848	-7.4%	Sales	2,336	2,479	6.1%
107	89	-16.7%	Adjusted EBITA	225	250	11.1%
11.7%	10.5%		Adjusted EBITA margin	9.6%	10.1%
78	68	-12.4%	EBITA	155	189	21.4%
50	40	-20.3%	Income from operations (EBIT)	72	104	44.0%

* For comparability purposes, note that figures for the period only include results of Cooper Lighting since March 2020.

Third quarter

Sales decreased by 7.4% to EUR 848 million, with a comparable sales decline of 7.3%, largely due to component shortages and shipping delays across most geographies. Adjusted EBITA decreased to EUR 89 million with an Adjusted EBITA margin of 10.5%, which was impacted by increased input and logistics costs, a lower fixed costs absorption, partly offset by indirect cost savings.

Digital Products

	Third quarter				Nine months
2020	2021	change	in millions of EUR, unless otherwise indicated	2020	2021	change
		2.5%	Comparable sales growth			12.2%
575	588	2.1%	Sales	1,577	1,715	8.8%
76	76	1.0%	Adjusted EBITA	167	224	34.4%
13.1%	13.0%		Adjusted EBITA margin	10.6%	13.1%
73	73	0.4%	EBITA	154	212	37.1%
71	72	0.5%	Income from operations (EBIT)	149	206	38.8%

Third quarter

Sales increased by 2.1% to EUR 588 million, with a comparable sales growth of 2.5%. During the quarter, most segments continued to grow despite supply chain constraints. Demand for connected products remained strong in most geographies but was hampered by these constraints. The Adjusted EBITA margin of 13.0% was broadly in line with last year, as the positive effect of sales mix and price increases was offset by higher COGS and increased marketing costs.

Conventional Products

	Third quarter				Nine months
2020	2021	change	in millions of EUR, unless otherwise indicated	2020	2021	change
		-13.2%	Comparable sales growth			-5.3%
233	202	-13.3%	Sales	701	642	-8.4%
42	38	-9.2%	Adjusted EBITA	124	124	0.3%
17.9%	18.8%		Adjusted EBITA margin	17.7%	19.4%
35	32	-8.0%	EBITA	119	121	1.4%
35	32	-8.0%	Income from operations (EBIT)	119	121	1.4%

Third quarter

Sales decreased by 13.3% to EUR 202 million, a comparable decline of 13.2%. The Adjusted EBITA margin increased by 90 bps to 18.8%, mainly driven by strong pricing power and operational efficiencies.

Other

Third quarter

'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 -21 million (Q3 20: EUR -26 million) and EBITA was EUR -26 million (Q3 20: EUR -25 million). Restructuring costs and other incidentals were EUR 5 million (Q3 20: EUR 0 million) during the quarter.

Sales by market

	Third quarter				Nine months
2020	2021	Change	CSG	in millions of EUR, except percentages	2020	2021	change	CSG
525	465	-11.4%	-11.4%	Europe	1,433	1,464	2.2%	2.9%
668	637	-4.6%	-3.0%	Americas	1,772	1,848	4.3%	-0.8%
407	401	-1.3%	-2.3%	Rest of the world	1,054	1,148	8.9%	12.2%
128	140	9.0%	4.9%	Global businesses	365	391	7.1%	5.0%
1,728	1,643	-4.9%	-4.8%	Total	4,624	4,852	4.9%	3.6%

Americas includes Cooper Lighting from March 1, 2020, and Global businesses includes Klite

Wiz Connected is included in Market Groups Europe, Americas and Rest of the world (was previously part of Global businesses)

Third quarter

In the third quarter, most markets were impacted by global supply chain disruptions caused by component shortages, container shortages and other logistics challenges. These supply chain disruptions and a higher base of comparison resulted in a comparable sales decline of 11.4% in Europe. In the Americas, comparable sales declined by 3.0%. In the Rest of the world comparable sales declined by 2.3%.

Working capital

in millions of EUR, unless otherwise indicated	30 Sep, 2020	30 Jun, 2021	30 Sep, 2021
Inventories	1,000	1,120	1,301
Trade and other receivables	1,155	1,056	1,069
Trade and other payables	-1,749	-1,935	-2,064
Other working capital items	37	29	9
Working capital	443	269	316
As % of LTM* sales	7.0%	4.0%	4.7%

• LTM: Last Twelve Months

Third quarter

Working capital decreased by EUR 127 million year on year to EUR 316 million and improved by 230 bps to 4.7% as a percentage of last twelve-month sales. When including last twelve-month sales pro forma for Cooper Lighting and Klite, the improvement was 170 bps. The lower year-on-year working capital was driven by higher payables, lower receivables and lower other working capital items, which more than offset the temporary increase of goods-in-transit inventories due to shipment delays.