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Signify Reports Sales Down, Profit Up

Signify Reports Sales Down, Profit Up

October 26, 2018

Signify reports third quarter sales of EUR 1.6 billion, improvement in operational profitability by 150 bps to 12.0% and free cash flow to EUR 64 million

Third quarter 2018

  • Sales of EUR 1,594 million; a comparable sales growth of -3.2%
  • LED-based sales represented 70% of total sales (Q3 2017: 68%) and grew by 0.1% on a comparable basis
  • Currency comparable adj. indirect costs down EUR 58 million, a reduction of 11%, or 260 basis points of sales
  • Adj. EBITA of EUR 191 million (Q3 2017: EUR 176 million), impacted by currency effects of EUR -14 million
  • Adj. EBITA margin of 12.0% (Q3 2017: 10.5%), including a currency impact of -60 basis points
  • Net income of EUR 93 million (Q3 2017: EUR 110 million including a net real estate gain of EUR 21 million), with
  • EUR 8 million higher restructuring costs compared with last year
  • Working capital improved by 240 basis points to 10.1% of sales
  • Free cash flow of EUR 64 million (Q3 2017: EUR -5 million including EUR 21 million real estate proceeds)

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company’s 2018 third quarter results. “We substantially improved our profitability and free cash flow in the third quarter, while our sales performance was impacted by more challenging market conditions in several geographies and a strong base of comparison. We are pleased with the progress of our simplification and cost reduction actions which contributed to our operating margin and cash performances,” said CEO Eric Rondolat. “Meanwhile, we continue to invest in growth and innovation to capture the strategic opportunities of smart and connected lighting and our teams remain focused on strengthening our leadership in changing market conditions.”

Outlook

The company expects its comparable sales growth in the second half of the year to be similar to the first half. Taking into account the solid progress in cost savings, the company remains confident that it will be able to improve the Adjusted EBITA margin to the lower end of the 10.0-10.5% range. The company also continues to expect to generate a solid free cash flow in 2018, which will be somewhat lower than the level in 2017 due to higher restructuring payments.

Share repurchase program

On July 30, 2018, Signify announced the start of a share repurchase program to buy back up to EUR 230 million of its own shares to reduce the company’s capital. Up to October 19, 2018, the company repurchased 5,930,512 shares under this program for a total consideration of EUR 138 million. More details can be found on the Signify Investor Relations website.

Third quarter

Sales amounted to EUR 1,594 million. Adjusted for -2.1% currency effects, comparable sales decreased by 3.2%. This was mainly due to a high comparison base and challenging market dynamics in several geographies. Comparable LED- based sales now represent 70% of total sales compared with 68% in Q3 2017. The adjusted gross margin declined by 90 basis points to 39.1%, reflecting a negative currency effect of 50 basis points and a high comparison base. Adjusted indirect costs decreased by EUR 65 million, or 230 basis points as a percentage of sales, as we continued to deliver on our cost reduction initiatives. Adjusted EBITA amounted to EUR 191 million, compared with EUR 176 million in the same period last year, and was negatively impacted by EUR 14 million of currency effects. The Adjusted EBITA margin improved by 150 basis points to 12.0%, despite a currency effect of -60 basis points. Restructuring costs were EUR 17 million and incidental charges were EUR 7 million. Net income was EUR 93 million compared with EUR 110 million last year, due to EUR 8 million higher restructuring costs in Q3 2018 and a net real estate gain of EUR 21 million related to Lamps in Q3 2017. Free cash flow amounted to EUR 64 million compared with EUR -5 million last year, mainly driven by an improvement in working capital. Free cash flow in Q3 2017 included proceeds of a real estate sale of EUR 21 million.

Lamps Third Quarter

Sales amounted to EUR 361 million, a comparable decrease of 11.1%. This is better than previous quarters, driven by the halogen bulb ban in Europe that came into effect on September 1, 2018, and a solid performance in consumer lamps and certain specialty lighting categories. The decline in comparable sales is estimated to be lower than the market decline, resulting in continued market share gains. The Adjusted EBITA margin improved by 490 basis points to 24.6%. This was mainly driven by a better comparable sales growth performance and a continued reduction in indirect costs. Adjusted EBITA amounted to EUR 89 million.

LED Third Quarter

Sales amounted to EUR 444 million. On a comparable basis, sales declined by 1.9%. While the comparable sales trend in LED electronics continued to improve, the comparable sales growth of LED lamps was impacted by a high comparison base and a soft level of activity with retailers in Europe and the US. Adjusted EBITA increased to EUR 53 million, improving the Adjusted EBITA margin by 130 basis points to 12.0%. The improvement mainly resulted from procurement savings and lower indirect costs, partly offset by price erosion which is slowing.

Professional Third Quarter

 On a comparable basis, sales increased by 0.4% to EUR 675 million, on the back of a high comparison base in Q3 2017. Growth slowed due to a lower level of market activity, most notably in Europe and China, and a slowdown in medium- to large-sized projects in the US. Adjusted EBITA amounted to EUR 79 million, improving the Adjusted EBITA margin by 130 basis points to 11.7%, mainly driven by lower indirect costs.

Home Third Quarter

Sales amounted to EUR 110 million, a decrease of 1.4% on a comparable basis reflecting a high comparison base as US retail partners started to build up inventories in the third quarter last year. Sales performance improved sequentially as activity returned to more normalized levels. The Adjusted EBITA of EUR -8 million in the third quarter showed a significant improvement compared with the first two quarters of the year, reflecting more normalized activity and the ongoing adaptation of our cost base.

You can read Signfy’s full earnings report by clicking here.

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