January 30, 2023
Signify CEO Comments on Markets & Competition
Company saw modest growth in 2022. Volatility expected to persist, yet CEO conveys optimism.
On Friday, Signify (Euronext: LIGHT), the world's largest lighting manufacturer, announced the company’s fourth quarter and full-year 2022 results for the period ending December 31, 2022.
Signify reported that comparable sales growth was 1.2%, benefiting from traction in the professional segment, partly offset by China, which was impacted by COVID-related measures, and softness in the consumer segment. Nominal sales increased by 9.5% to €7,514 million, including a positive currency effect of 6.0%, largely driven by the appreciation of the U.S. dollar, and a positive impact of 2.4% from the acquisitions of Texas-based horticultural lighting maker, Fluence, and Australia-based Pierlite.
Additionally, Signify reported an adjusted gross margin declined by 210 bps to 37.3%, mainly due to an adverse currency impact as price increases largely compensated input and energy cost inflation throughout the year. Adjusted EBITA declined by 4.2% to €762 million.
See Signify's full financial report »
Executive commentary
On Friday, Eric Rondolat, CEO, and Javier van Engelen, CFO, hosted a conference call for analysts and institutional investors. Also on Friday, Rondolat appeared on CNBC Europe for a quick interview about the business. Below are some of the comments shared by the Signify executives.
Rodolat indicated that "Q4 under delivery versus our expectation was mainly driven by continued disruptions in China due to the zero-COVID policy, a slowdown in the OEM channel, lower sales in professional indoor lighting and the continued softness in the consumer segment."
2023 Guidance: No revenue projection at this time
The company is not providing 2023 revenue guidance currently. Rondolat explained, “While we continue to aim for growth both organically and through selected acquisitions, we expect the volatility in our markets to persist in 2023. Therefore, we will not provide a comparable sales growth guidance at this stage.”
For 2023, Signify expects to achieve an adjusted EBITA margin in the range of 10.5% to 11.5% and
Free cash flow is expected to be in the range of 6% to 8% of sales.
Impact of price increases
Van Engelen explained, “the positive impact of price increases worth €69 million in Q4 continue to fully offset the €45 million negative impact of higher input costs. Although our indirect costs improved by €47 million, they were not sufficient to offset the volume decline.”
Currency exchange rates are affecting the business
Javier van Engelen explained, “There is a general movement of exchange rates where typically year-on-year, you look at especially the strengthening of the U.S. dollar and the Chinese RMB versus the euro, which impacts us, obviously.”
Van Engelen added, “We have taken hedging positions, especially on the U.S. dollar, counting on a faster growth of the U.S. business” and “we are short on Chinese RMB, and we are long on U.S. dollar.”
U.S. Markets, Destocking Distributors and OEMs
Rondolat explained, "On the consumer channel, we had very early destocking in 2022, in line with the perceived recession or the softness of the consumer market that was also felt by our distributors."
“It's been different in Professional. There was still some destocking, maybe not at the same level, and it happened a bit later during the year. And we have seen that on the professional side, not only in Europe but also in the U.S. Now the destocking doesn't only depend on our distributors, but it depends on how much inventory we have at these distributors. So it could be the case that some of our competitors have more stock at those distributors, and they see potentially more destocking in the coming quarters that we see, where we believe that our stock has already been substantially reduced and what we're going to see moving forward is not a further massive destocking also in the U.S.”
“While the outdoor segment and especially the public segment continued to grow, we saw a more challenging indoor professional business, particularly in Europe and in the U.S.”
Rondolat indicated that the OEM channel “has done quite well during the year” but saw noticeable destocking by the OEM customers – meaning they are taking less robust inventory levels as component availability has become more reliable.
Delayed Projects
Rondolat cited strength in business related to "the infrastructure, investment in all different types of infrastructures. So we see in the U.S. and in Europe, a very good dynamic on that front." He went on to explain, "On the other hand, when you look at, what I would say, the rest of the construction non-residential market, we see today projects being delayed because of the overall pressure that companies are experiencing on the P&L. So probably that investments are not lost, but they will slightly be delayed."
Bookings and backlog return to pre-pandemic norms
Rondolat explained "So at this point in time, we stand with an order book and starting the quarter, which is pretty much in line with what we had before the crisis. And we're talking about 20% to 30% of sales. This is very typical of what we do, and the backlog has also come back to historical levels."
Competitors and “cheap imitations”:
During a recent television interview, CNBC's Steve Sedgwick asked Rondolat about the impact of rival lighting makers that produce "cheap imitations", Rondolat emphasized Signify's strengths explaining that "it's not only about assembling a light source, it's also about connecting it to software, to control devices, to apps..." leading to about €2 billion of Signify revenue to differentiate against these competitors.
