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-based sales 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.”


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 2025 sustainability 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.

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.

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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 2021 third quarter results. A live audio webcast of the conference call will be available via the Investor Relations website.

Financial calendar 2021
January 28, 2022     Fourth quarter and full year results 2021
February 22, 2022   Annual Report 2021

For further information, please contact:
Signify Investor Relations
Thelke Gerdes
Tel: +31 6 1801 7131
E-mail: thelke.gerdes@signify.com

Signify Corporate Communications
Elco van Groningen
Tel: +31 6 1086 5519
E-mail: elco.van.groningen@signify.com

About Signify
Signify (Euronext: LIGHT) is the world leader in lighting for professionals and consumers and lighting for the Internet of Things. Our Philips products, Interact connected lighting systems and data-enabled services, deliver business value and transform life in homes, buildings and public spaces. With 2020 sales of EUR 6.5 billion, we have approximately 37,000 employees and are present in over 70 countries. We unlock the extraordinary potential of light for brighter lives and a better world. We achieved carbon neutrality in 2020, have been in the Dow Jones Sustainability World Index since our IPO for four consecutive years and were named Industry Leader in 2017, 2018 and 2019. News from Signify is located at the Newsroom, Twitter, LinkedIn and Instagram. Information for investors can be found on the Investor Relations page.

Important Information

Forward-Looking Statements and Risks & Uncertainties
This document and the related oral presentation contain, and responses to questions following the presentation may contain, forward-looking statements that reflect the intentions, beliefs or current expectations and projections of Signify N.V. (the “Company”, and together with its subsidiaries, the “Group”), including statements regarding strategy, estimates of sales growth and future operational results.

By their nature, these statements involve risks and uncertainties facing the Company and its Group companies, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement as a result of risks and uncertainties. Such risks, uncertainties and other important factors include but are not limited to: adverse economic and political developments, the impacts of COVID-19, rapid technological change, competition in the general lighting market, development of lighting systems and services, successful implementation of business transformation programs, impact of acquisitions and other transactions, reputational and adverse effects on business due to activities in Environment, Health & Safety, compliance risks, ability to attract and retain talented personnel, adverse currency effects, pension liabilities, and exposure to international tax laws. Please see “Risk Factors and Risk Management” in Chapter 12 of the Annual Report 2020 for discussion of material risks, uncertainties and other important factors which may have a material adverse effect on the business, results of operations, financial condition and prospects of the Group. Such risks, uncertainties and other important factors should be read in conjunction with the information included in the Company’s Annual Report 2020 and Semi-Annual Report 2021.

Additional risks currently not known to the Group or that the Group has not considered material as of the date of this document could also prove to be important and may have a material adverse effect on the business, results of operations, financial condition and prospects of the Group or could cause the forward-looking events discussed in this document not to occur. The Group undertakes no duty to and will not necessarily update any of the forward-looking statements in light of new information or future events, except to the extent required by applicable law.

Market and Industry Information
All references to market share, market data, industry statistics and industry forecasts in this document consist of estimates compiled by industry professionals, competitors, organizations or analysts, of publicly available information or of the Group’s own assessment of its sales and markets. Rankings are based on sales unless otherwise stated.

Non-IFRS Financial Measures
Certain parts of this document contain non-IFRS financial measures and ratios, such as comparable sales growth, adjusted gross margin, EBITA, adjusted EBITA, and free cash flow, and other related ratios, which are not recognized measures of financial performance or liquidity under IFRS. The non-IFRS financial measures presented are measures used by management to monitor the underlying performance of the Group’s business and operations and, accordingly, they have not been audited or reviewed. Not all companies calculate non-IFRS financial measures in the same manner or on a consistent basis and these measures and ratios may not be comparable to measures used by other companies under the same or similar names. A reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures is contained in this document. For further information on non-IFRS financial measures, see “Chapter 18 Reconciliation of non-IFRS measures” in the Annual Report 2020.

Presentation
All amounts are in millions of euros unless otherwise stated. Due to rounding, amounts may not add up to totals provided. All reported data are unaudited. Unless otherwise indicated, financial information has been prepared in accordance with the accounting policies as stated in the Annual Report 2020 and Semi-Annual Report 2021.

Market Abuse Regulation
This press release contains information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

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