Signify reports first quarter sales

“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 programme 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 and 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.

Outlook

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

First Quarter

Nominal sales decreased by 6.1% to €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 100bps to 39.3%, mainly driven by continued price discipline and effective COGS management. Adjusted indirect costs as a percentage of sales increased by 240bps to 31.9%, as the reduction of indirect costs was not sufficient to compensate lower sales.

Adjusted EBITA decreased to €149 million. The Adjusted EBITA margin decreased by 160bps 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 €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. Acquisition-related charges were €3 million and incidental items were €16 million, mainly related to additions to environmental provisions.

Net income decreased to €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.

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 recognised measures of financial performance or liquidity under IFRS.