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July 23, 2021   

Five Takeaways from Signify's Q2 Results

CNBC asks CEO Eric Rondolat if price increases will roll back after supply constraints subside.

  • On Friday July 23, Signify announced its second quarter results. Compared to the Covid shutdown quarter of April-June 2020, Signify’s sales for the most recent quarter were $1.9B, up 9.6%. (€ 1,609M vs € 1,469M)
  • Intraday trading sees Signify N.V. stock (LIGHT.AS) trading at €47.97, down €2.65 (-5.24%).

 

Here are some of the takeaways:

1.  Forfeited Sales Revenue

The company believes that an additional $100M (€ 85M) would have been invoiced by Signify in the first half of the year if not for the supply chain challenges.

Three months ago, Rondolat stated that 3% of potential Q1 sales were pushed to next quarter due to supply chain issues.

 

2.  "Transitory" vs. "Structural" component price increases

In an interview with CNBC, Signify CEO Eric Rondolat explained that price increases of certain parts are "transitory" -- i.e. paying 40X more for certain components today, than in the recent past. He then shares that other component price increases are believed to be more "structural", predicting that the "price of copper and other commodities will likely go up for the longer run."

 

3.  How much business is happening in the US?

Signify financial reports combine North America & South America as one of its global regions, which often makes it difficult to decipher how much revenue the company is doing in the U.S. market. An analysis of currency movements by the company shows that 37% of Q2 revenue was derived from markets that utilize the U.S. Dollar. While there are some international countries that use USD, they tend to be small and likely wouldn't have a big impact on the 37% share.

Signify Q2 three largest currencies

  • US Dollar 37%  ($703M)
  • Euro 26%
  • Chinese Yuan 9%

Total Signify sales for Q2 include Philips lamps, consumer products, Genlyte Solutions, Cooper Lighting, Color Kinetics, Advance, Bodine, etc.

 

4.  Product Breakdown

The company breaks out three product groups and seemed to emphasize the largest segment, Digital Solutions, the most.  The company touted success with horticultural products, Philips LED luminaires with the Interact connected lighting system, UV-C and Color Kinetics.

  • Digital Solutions (52% of sales) offers luminaires, lighting systems and services for the Internet of Things to customers in the professional segment.
  • Digital Products  (35% of sales) offers LED lamps, luminaires and connected products, including Hue and Wiz, and LED electronics to consumers, professional customers and OEM’s.
  • Conventional Products (13% of sales) focuses on conventional lamps and electronics for professional customers, OEM’s and consumers.

 

5.  2021 Financial Projections:

Revenue Recovery – Signify continues to expect comparable sales growth between 3% and 6% for the full year 2021

Margins to remain strong – Signify continues to expect an Adjusted EBITA margin of 11.5% to 12.5% and free cash flow to exceed 8% of sales.

Below is the official announcement from Signify:

 


Signify reports second quarter sales of EUR 1.6 billion, operational profitability of 10.9% and a free cash flow of EUR 104 million

Second quarter 20211

  • Signify's installed base of connected light points increased from 83 million in Q1 21 to 862 million in Q2 21
  • Sales of EUR 1,609 million; 9.6% nominal sales growth and CSG of 14.1%
  • LED-based sales represented 82% of total sales (Q2 2020: 80%)
  • Adj. EBITA margin improved by 190 bps to 10.9%
  • Net income increased to EUR 82 million (Q2 20: EUR 81 million)
  • Free cash flow of EUR 104 million (Q2 20: EUR 158 million)
  • Net debt/EBITDA ratio of 1.7x (Q2 20: 2.4x)

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company’s second quarter 2021 results.

“In the second quarter we saw an acceleration of the pace of recovery in comparison to the first three months of the year. We successfully executed our strategy as demand for our connected lighting offers and our growth platforms remained strong. The consumer segment held its momentum and demand for conventional products proved resilient. The professional lighting segment showed sequential improvements, while still impacted by both extended lockdowns and supply constraints. Overall, we managed to improve the operating margin by 190 basis points and generated a solid free cash flow. We again progressed on our Brighter Lives, Better World 2025 program, well on track to achieving our four key objectives. Looking back at the first half year, we are pleased with the pace of our recovery in a volatile and disrupted environment, achieving more than 8 percent comparable sales growth with an operating margin improvement of 230 basis points and generating EUR 272 million of free cash flow,” said CEO Eric Rondolat.

“While we are seeing increasing COVID-19 cases, new variants leading to continued lockdowns in parts of the world and supply constraints continuing to impact us into the second half of the year, we are confident that the measures we have taken will enable us to counter those challenges and deliver our guidance for the year.”

Brighter Lives, Better World 2025

In the second quarter of the year, Signify continued on the journey to achieving its ambitious goals for the Brighter Lives, Better World 2025 sustainability program, progressing on all four commitments that contribute to doubling its positive impact on environment and society:

  • Double the pace of the Paris agreement:
    Cumulative carbon reduction over value chain was 33 million tonnes, ahead of track for the 2025 target of 340 million tonnes. This is mainly caused by an accelerated shift to energy efficient and connected LED lighting in the first two quarters of 2021, decreasing our carbon emissions in the use phase.
  • Double our Circular revenues to 32%:
    Circular revenues increased to 24%, compared to the 2019 baseline of 16%. We are on track for the 2025 target of 32%. This is mainly due to our strong portfolio of serviceable luminaires and the further expansion of our 3D printing footprint.
  • Double our Brighter lives revenues to 32%:
    Brighter lives revenues were 25%, progressing well towards the 2025 target of 32%. We had several customer wins that contribute to our Brighter lives revenues, including 'quality of light' EyeComfort products, horticulture lighting and UV-C disinfection lighting.
  • Double the percentage of women in leadership positions to 34%:
    The percentage of women in leadership positions was 25%, on track to reach the 2025 target of 34%. This target is part of a broader program, where we focus our efforts on attracting, retaining and developing diverse talents, while ensuring equal opportunities, fairness and impartiality for all.

In addition, Signify received recognition for its leadership in sustainability, amongst which a first place ranking in our industry and top 5% of the ESG Risk Ratings Universe from Sustainalytics.

Outlook

Signify continues to expect comparable sales growth of 3% to 6% for the full year 2021. In addition, Signify expects to achieve an Adjusted EBITA margin of 11.5% to 12.5% and free cash flow to exceed 8% of sales for the full year 2021. As previously stated, the company reassesses its medium-term guidance after each financial year.

Financial review

Second quarter Six months
2020 2021 change in millions of EUR, except percentages 2020 2021 change
14.1  % Comparable sales growth 8.4  %
-4.5  % Effects of currency movements -5.5  %
0.0  % Consolidation and other changes 8.0  %
1,469 1,609 9.6  % Sales 2,896 3,209 10.8  %
567 638 12.5  % Adjusted gross margin 1,112 1,275 14.7  %
38.6% 39.7% Adj. gross margin (as % of sales) 38.4% 39.7%
-401 -423 Adj. SG&A expenses -794 -847
-67 -70 Adj. R&D expenses -134 -142
-468 -493 -5.4  % Adj. indirect costs -928 -989 -6.6  %
31.9% 30.6% Adj. indirect costs (as % of sales) 32.0% 30.8%
133 175 32.0  % Adjusted EBITA 245 347 41.8  %
9.0% 10.9% Adjusted EBITA margin 8.5% 10.8%
-13 -39 Adjusted items -55 -97
119 136 13.8  % EBITA 189 251 32.3  %
87 106 21.5  % Income from operations (EBIT) 130 191 46.7  %
-16 -7 Net financial income/expense -26 -16
10 -17 Income tax expense 4 -32
81 82 0.8  % Net income 108 142 31.3  %
158 104 Free cash flow 270 272
0.62 0.65 Basic EPS (€) 0.85 1.12
35,789 39,143 Employees (FTE) 35,789 39,143

* For comparability purposes please note that FY 2020 includes only 10 months of Cooper Lighting performance

Second quarter
Sales increased by 9.6% to EUR 1,609 million, including 4.5% negative currency effects. Comparable sales increased by 14.1%, driven by continued strong demand for connected lighting offers and traction on the consumer side. The adjusted gross margin increased by 110 bps to 39.7%, driven by both carefully balancing pricing decisions versus cost increases, and a favorable mix. Adjusted indirect costs increased by EUR 25 million, mainly reflecting last year's positive effect of solidarity measures by our employees, and government contributions. Adjusted EBITA amounted to EUR 175 million, a 32.0% increase compared to the same period last year. The Adjusted EBITA margin improved by 190 bps to 10.9%, mainly driven by a gross margin improvement and operating leverage.

Total restructuring costs were EUR 9 million, acquisition-related charges were EUR 13 million and other incidental costs were EUR 16 million, mainly related to environmental provisions for inactive sites and transformation costs. Net income increased to EUR 82 million, as higher operational profitability in 2021 was offset by the impact of a significant one-time tax benefit in the second quarter of 2020. Free cash flow was EUR 104 million, reflecting a healthy balance between profitability and some reinvestment in continued top line recovery.

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.
² Excludes 2 million connected light points for Telensa, as acquisition closed on July 1, 2021
 

For the full and original version of the press release click here
For the presentation click here

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

Financial calendar 2021
October 29, 2021 Third quarter results 2021
January 28, 2022 Fourth quarter and full year results 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 39,000 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 and have been in the Dow Jones Sustainability World Index since our IPO for four consecutive years.

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.

Looking ahead to the second half of 2021, the Group's key concerns are about both the supply chain constraints and shortage of certain components, and the uncertainties related to the COVID-19 pandemic in the global and domestic markets in which it operates. The main challenge remains the visibility on how quickly the general lighting market may recover to (pre-COVID-19) 2019 levels. This is relevant to the Group as a large part of its business relates to the professional market which has been, and continues to be, significantly impacted by government lockdowns. 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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