Signify reports second quarter sales of EUR 1.5 billion, operational profitability of 9.0% and free cash flow of EUR 121 million

Press Release

July 26, 2019

Signify reports second quarter sales of EUR 1.5 billion, operational profitability of 9.0% and free cash flow of EUR 121 million

Second quarter 2019¹

• Signify's installed base of connected light points increased from 47 million in Q1 19 to 50 million in Q2 19
• CSG growing profit engines -2.3%; CSG total Signify -6.1%
• LED-based comparable sales grew by 0.2% to 77% of sales (Q2 18: 70%)
• Adj. indirect costs down EUR 37 million on a currency comparable basis, a reduction of 8%, or 60 bps of sales
• Adj. EBITA margin improved by 60 bps to 9.0%, including currency impact of +20 bps
• Net income improved by 73% to EUR 50 million (Q2 18: EUR 29 million)
• Free cash flow amounted to EUR 121 million (Q2 18: EUR -31 million), mainly driven by higher income and phasing of payables and receivables

Half year 2019¹

• CSG growing profit engines -0.7%; CSG total Signify -4.7%
• LED-based comparable sales grew by 1.9% to 76% of sales (H1 18: 69%)
• Adj. indirect costs down EUR 77 million on a currency comparable basis, a reduction of 8%, or 120 bps of sales
• Adj. EBITA margin improved by 70 bps to 8.4%, despite currency impact of -60 bps
• Net income improved to EUR 95 million (H1 18: EUR 49 million)
• Free cash flow increased to EUR 175 million (H1 18: EUR -37 million)

Eindhoven, the Netherlands - Signify (Euronext: LIGHT), the world leader in lighting, today announced the company's 2019 second quarter results. "We are satisfied with the ongoing improvement in the operational profitability and cash generation of our businesses in the second quarter. Sales declined mainly due to economic headwinds in Europe and non-recurring country-specific developments in growth markets," said CEO Eric Rondolat. "While market conditions remain challenging, the solid momentum in our growth platforms, our relentless focus on operational efficiencies and our strong free cash flow profile position us well for the future."

Outlook

We confirm our outlook that in 2019 our growing profit engines (LED, Professional and Home combined) are expected to deliver a comparable sales growth in the range of 2% to 5%. Our cash engine, Lamps, is expected to decline at a slower pace than the market, in the range of -21% to -24% on a comparable basis. For total Signify, we aim to reach an Adjusted EBITA margin in 2019 within the range of 11% to 13% set at the time of the IPO in May 2016. In 2019, we expect free cash flow, excluding the positive impact from IFRS 16, to be above 5% of sales.

Financial review

Second quarter				Six months
2018	2019	change	in € million, except percentages	2018	2019	change
		-6.1%	Comparable sales growth			-4.7%
		1.7%	Effects of currency movements			1.4%
		0.5%	Consolidation and other changes			0.6%
1,537	1,477	-3.9%	Sales	3,038	2,955	-2.7%
583	557	-4.4%	Adjusted gross margin	1,163	1,114	-4.2%
37.9%	37.7%		Adj. gross margin (as % of sales)	38.3%	37.7%
-405	-383		Adj. SG&A expenses	-822	-778
-73	-67		Adj. R&D expenses	-153	-136
-478	-449	6.0%	Adj. indirect costs	-976	-914	6.3%
31.1%	30.4%		Adj. indirect costs (as % of sales)	32.1%	30.9%
130	133	2.1%	Adjusted EBITA	235	247	5.1%
8.4%	9.0%		Adjusted EBITA margin	7.7%	8.4%
-53	-28		Adjusted items	-96	-50
77	104	35.2%	EBITA	140	198	41.5%
54	80	48.0%	Income from operations (EBIT)	94	149	59.3%
-13	-12		Net financial income/expense	-23	-21
-12	-19		Income tax expense	-22	-35
29	50	72.6%	Net income	49	95	91.6%
-31	121		Free cash flow	-37	175
0.23	0.41		Basic EPS (€)	0.38	0.76
30,097	28,144		Employees (FTE)	30,097	28,144

Second quarter

Sales amounted to EUR 1,477 million. Adjusted for 1.7% positive currency effects, comparable sales decreased by 6.1%, with LED-based sales increasing by 0.2% and now accounting for 77% of total sales. The adjusted gross margin declined by 20 bps to 37.7% due to lower sales volumes and price erosion, largely offset by ongoing procurement savings. Adjusted indirect costs decreased by EUR 29 million, or 70 bps as a percentage of sales, as a result of our ongoing cost reduction initiatives. Adjusted EBITA amounted to EUR 133 million compared with EUR 130 million in the same period last year. The Adjusted EBITA margin improved by 60 bps to 9.0%, despite a sales decline, and includes a currency impact of +20 bps. Total restructuring costs were EUR 14 million and other incidentals were also EUR 14 million.


Net income increased from EUR 29 million last year to EUR 50 million in Q2 19, mainly as a result of better operational profitability and lower restructuring costs. Free cash flow, which included a positive impact of EUR 17 million related to IFRS 16, amounted to EUR 121 million, mainly driven by higher income and the phasing of payables and receivables. The effect of phasing is estimated to represent around half of the free cash flow in the quarter.

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.

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

Conference call and audio webcast

Eric Rondolat.

Financial calendar
October 25, 2019 Third quarter results 2019
December 12, 2019 Capital Markets Day 2019
For full calendar click here.

For further information, please contact:

Signify Investor Relations
Robin Jansen
Tel: [phone]
E-mail: [e-mail]

Signify Corporate Communications
Elco van Groningen
Tel: [phone]
E-mail: [e-mail]

About Signify

Signifyproducts, Interactconnected lighting systems and data-enabled services, deliver business value and transform life in homes, buildings and public spaces. With 2018 sales of EUR 6.4 billion, we have approximately 28,000 employees and are present in over 70 countries. We unlock the extraordinary potential of light for brighter lives and a better world. We have been named Industry Leaderin the Dow Jones Sustainability Index for two years in a row. News from Signify is located at the Newsroom, Twitter, LinkedInand Instagram. Information for investors can be found on the Investor Relationspage.??


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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 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, establishment of corporate and brand identity, 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 2018 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 2018.

Looking ahead to the second half of 2019, the Group is primarily concerned about the challenging economic conditions and political uncertainties, for example related to the impact of the recently imposed import tariffs, in the global and domestic markets in which it operates. 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 2018.

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 2018 and semi-annual report 2019.

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