Q2 2020 results

July 24, 2020

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 ofSignify 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 inany 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, impacts of COVID-19, the 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, impactof the Group’s operation as a separate publicly listed company, pension liabilities and costs, establishment of corporate and brand identity, adverse tax consequences from the separation from Royal Philips and exposure tointernational tax laws. Please see “Risk Factors and Risk Management” in Chapter 12 of the Annual Report 2019 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 Report2019. 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, resultsof 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 forwardlooking 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 Statements
Certain parts of this document contain non-IFRS financial measures and ratios, such as comparable sales growth, adjusted gross margin, EBITA, adjusted EBITA, EBITDA, adjusted EBITDA 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 businessand 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 2019.
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 inaccordance with the accounting policies as stated in the Annual Report 2019 and the semi-annual report 2020.
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This presentation contains information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

2

Content
Business and operational performance by Eric Rondolat
Financial performance by René van Schooten

H1 20 highlights and 2020 outlook by Eric Rondolat
Q&A3

Q2 20 sales of EUR 1.5bn and operational profitability maintained at 9.0%
Sales (in EURm) & comparable sales growth (in %)
-6.1%

-5.0%

-4.2%
-15.3%-22.5%

1,477

1,542

1,750

1,4271

1,4691

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Adjusted EBITA (in EURm & as % of sales)

Key observations for Q2 20•

Sales of EUR 1.5bn, nominal sales growth of -0.6% and CSG of-22.5%•

LED-based sales represented 80% of total sales (Q2 19: 79%2)•

Installed base of connected light points increased from 61m
in Q1 20 to 64m3 in Q2 20•

Adjusted indirect costs down EUR 86m, or -19.1% excl.
currency effects and changes in scope•

Adj. EBITA margin remained stable at 9.0%, incl. currency
impact of -60 bps•

Net income increased to EUR 81m (Q2 19: EUR 50m) mainly
due to one-off items•

FCF increased to EUR 158m (Q2 19: EUR 121m)

13.2%
9.0%

4

11.0%

7.9%

9.0%

133

169

232

1121

1331

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

1Cooper Lighting has been consolidated from March 2nd, 2020

2Pro-forma incl. Cooper Lighting and Klite
3Excluding Cooper Lighting

Growing profit engines: CSG of -21.9% and Adjusted EBITA margin
improvement of 100 bps

5Adjusted
EBITA %vs LY (bps)

+20

9.6%

+80

44

-1

9.3%

+110

119

+19

9.5%

+100

Q2 20

CSG %

Adjusted EBITA

Digital Solutions-22.4%

75

Digital Products-21.1%

Total-21.9%(EURm)vs LY (EURm)

Digital Solutions Adjusted EBITA margin improved by 80 bps, mainly driven
by an increase in gross margin and indirect cost savings
Sales (in EURm) & comparable sales growth (in %)
1.7%
-5.6%

Key observations for Q2 20•-1.5%-14.2%-22.4%

632

698

720

6391

7811

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

•

•
•

Nominal sales increase of 23.6% as a result of theconsolidation of Cooper Lighting
CSG declined by 22.4% and reflects a significant decline
in demand across all regions as a result of COVID-19
measures taken by governments and customers
Most severely impacted markets were North America,
India and France
LED-based sales accounted for 91% of total sales andconnected-based sales represented 18%2 of total sales

Adjusted EBITA (in EURm & as % of sales)
•
12.3%

12.7%
9.6%1

8.8%

6

Adjusted EBITA margin increased by 80 bps to 9.6%,
which was driven by an increase in gross margin andindirect cost savings

6.7%

55

86

92

431

751

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

1Cooper Lighting has been consolidated from March 2nd, 2020

2Excluding Cooper Lighting

Digital Solutions highlights
Partnered with NYPA toconnect half a million
streetlights

Rated as global leader insmart street lighting by
Guidehouse Insights

First lighting company
with connected lighting
security certification

Launched NatureConnect,
a lighting innovation
inspired by Nature

•

•

•

•

•

7

NYPA provides financial,logistical, technical, andinformational support for
cities who want to
upgrade street lighting
Illustrates the importantrole that connected street
lighting can play increating a smart city
infrastructure•

Guidehouse Insights
places Signify as the clear#1, both in strategy andexecution, a position
Signify has held since
2018
Signify’s connected street
lighting recognized asreliable, mature and ofhigh quality•

DEKRA confirms that ourconnected lighting
systems are based on acertified securedevelopment process
Illustrates our leadershipin embedding security inall aspects of ourinnovations, products,
systems, and services••

Creates healthy, engaging
and inspiring
environments
Leads to increased
productivity, engagement
and workplace satisfaction
First implementation at
one of Skanska’s offices in
Warsaw, Poland

Digital Products Adjusted EBITA margin improved by 110 bps, as a result of
positive price/mix impact and improved cost structure in connected home
Sales (in EURm) & comparable sales growth (in %)
1.8%

0.1%

0.1%
-14.8%Key observations for Q2 20•

Comparable sales declined by 21.1%• LED-based sales accounted for 98% of total sales• Connected-based sales represented 14% of sales• Overall demand was significantly impacted by the
COVID-19 measures taken by governments andcustomers• Online sales in the consumer channel showed a solid
performance• Sell-out rates for connected home lighting remained
strong•Adjusted EBITA margin improved by 110 bps, driven by:• Positive mix impact• Reduced price erosion• Improved cost structure in connected home lighting-21.1%

552

565

731

529

473

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Adjusted EBITA (in EURm & as % of sales)
15.7%
8.2%

8

9.4%

8.9%

9.3%

45

53

115

47

44

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Digital Products highlights
Introduced new Philips
Hue bulbs, fixtures andupdated lights

Launched Philips Hue
product portfolio in
RussiaLaunched theMasterConnect SNS210
sensorLaunched Meson
Interlaced Optics in our
emerging markets

•

•

•

•

•
•

9

Includes new Philips Hue
White bulb with output
doubled to 1600 lumen
Adds Bluetooth-capable
Philips Hue White
ambiance indoor range
New products also include
new family of indoor
ceiling fixtures andupdated Philips Huelightstrip

Provides Russian
consumers with a broad
Philips Hue portfolio, incl.
bulbs, fixtures, dimmer
switch, lightstrips andsensors•

Provides simple, scalable
and standardized solution
for indoor connected
lighting in schools, offices,
hospitals and other indoor
areas
Allows to upgrade lighting
to become fully automaticwith no need to touch any
switches•

Reinforces EyeComfort
proposition with
Interlaced optics
Double-layered optic
design with micro-lensproduces even light
distribution and reducesglareConventional Products Adjusted EBITA margin remained robust at 17.5%
Sales (in EURm) & comparable sales growth (in %)-18.3%Key observations for Q2 20•

Comparable sales decreased by 25.2%•

Conventional Products showed a relatively solid
performance partly as a result of strong demand for UV-C
and horticulture lighting•

Continued market share gains and solid FCF•

Adjusted EBITA margin remained robust at 17.5%-17.8%-20.3%-25.5%-25.2%

286

274

290

257

211

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Adjusted EBITA (in EURm & as % of sales)
19.5%

10

19.4%
17.3%

17.6%

17.5%

56

53

50

45

37

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Invested in UV-C to meet growing demand fordisinfection•

The leader in UV-C light sources; at the forefront of UV technology for > 35 years•

Boston University validated effectiveness of our light sources on inactivating thevirus that causes COVID-19•

Acquired GLA to complement portfolio with upper-room air disinfection luminaires•

Expanded our portfolio with 12 families of UV-C-based products for air, surfaces andobjects for professional markets•

Increasing our UV-C light source production capacity by a factor 8 this year11

Cooper Lighting and Klite integrations are well on track
Cooper Lighting
Accelerated cost synergies in the first year
Planned cost synergies of > USD 60m per year, to be achieved over 3 years, have been accelerated in 1st year:• Bill of Material savings remain ahead of plan
• Sourcing Optimization ahead of plan
• Supply Chain on track
Increased innovation power and competitive offerings to capture growth• Cooper Lighting deploying Signify’s global leading UV-C technology to its North American Markets• R&D technology sharing is accelerating overall Signify product roadmaps• Cooper Lighting IP strengthens Signify’s portfolio of licensed technology

Klite
Integration well on track• Supply chain fully operational again in Q2• People and system integration complete• Insourcing ahead of plan
• Sales to thirds: continued loyalty of existing customers; capture of new customers

12Content
Business and operational performance by Eric Rondolat
Financial performance by René van Schooten

H1 20 highlights and 2020 outlook by Eric Rondolat
Q&A

13

Signify Adj. EBITA margin: improvement driven by pricing and ongoing cost
reductions
Adjusted EBITA (in EURm)as %of sales

9.0%

133

9.0%

(140)
86

(28)

45

45

133

Scope/ Other

Q2 2020

(8)

301

131
Q2 2019

Volume / Mix

Price

CoGS

1Non-structural cost savings related to solidarity measures and government support

14

Indirect Costs

Currency

Comparable indirect costs decreased by 19.1%, adjusted for currencies andchanges in scope
as % of sales
In EURm
Adj. R&D

30.4%

449

31.9%

+150 bps

468

-86

67

67
301

108

383

• At a very early stage of the COVID-19

outbreak, a broad range of mitigating actions
to preserve profitability were identified• Underlying indirect cost reduction of EUR 86m

360-3

Key observations• Positive currency impact of EUR 3m
401• Impact from changes in scope of EUR 108m
• Continue to execute initiatives to further

Adj. SG&A

reduce the indirect cost base
Adj.
Indirectindirectcost
costs Q2 19 savings

Currency
impactAdj.
ChangesAdj.
indirect in scope2 indirect
costs Q2 20
costs Q2 20
excl. scopeincl. scope

1Non-structural cost savings related to solidarity measures and government support

15

2Consolidation effects from Cooper Lighting and Klite

WoCa decreased by 170 bps as % of sales, mainly due to solid inventory
management, lower receivables and higher payables
Working capital1 (in EURm & as % of sales)

Inventories (in EURm & as % of sales)
16.5%

9.4%
6.0%2

6.1%3

6.3%3

588

388

470

452

Q3 19

Q4 19

Q1 20

Q2 20

-170 bps

13.3%3

1.030

874

1.019

1.032

Q3 19

Q4 19

Q1 20

Q2 20

15.2%

10.1%
8.4%

9.3%

13.8%

14.9%

15.9%

8.0%

659

536

587

503

994

878

943

999

Q3 18

Q4 18

Q1 19

Q2 19

Q3 18

Q4 18

Q1 19

Q2 19

1 Working capital includes inventories, trade and other receivables, trade and other payables, other working capital items

16

14.3%313.62%

2 Includes sales of Klite on a 12-month pro-forma basis
3 Includes sales of both Cooper Lighting and Klite on a 12-month pro-forma basis-160 bps

Net debt decreased by EUR 104m, mainly as a result of strong FCF generation
In EURm
1,810

1,706

-173

-22

5

23

13

-3

53

Interest & Tax

Other
FCF items

Other*

FCF: EUR +158m

Net debt
end of Q1 20
Net leverageof 2.70x

EBITDA

Change inworking
capital

Net capex

Change inprovisions

Net debt
end of Q2 20
Net leverageof 2.45x*Other includes new lease liabilities (following the application of IFRS 16 for new lease contracts signed in 2020), and FX effect on cash, cash equivalents and debt

17

Content
Business and operational performance by Eric Rondolat
Financial performance by René van Schooten

H1 20 highlights and 2020 outlook by Eric Rondolat
Q&A

18

Strong progress made in H1 20 on cost reductions and FCF generation
Adjusted indirect costs

Adjusted EBITA(in EURm and % of sales)(in EURm and % of sales)

Free Cash Flow(in EURm)
270

33.6%1

32.1%

8.4%

8.5%

EUR 40m delayed tax
payments andreal estate proceeds

175

30.9%
7.7%

H1 20 performance

976

914

7741

235

247

245

-37

H1 18

H1 19

H1 20

H1 18

H1 19

H1 20

H1 18

Solid progress made on cost
reductions
Adj. indirect costs decreased by EUR
141m, an increase of 270 bps as % ofsales
1Excluding currency effects and changes in scope

19

Adjusted EBITA margin improved by
10 bps, despite currency impact of-30 bps

H1 19

H1 20

Strong cash management
Significant increase in FCF in H1 2020

Continuous commitment to Sustainability

Sustainable operations

Sustainable
revenues

H1 2020 result

20

Achievement

2020 target

Increasing energy
efficiency of portfolio

Sustainable revenues

83.1%

LED lamps &luminaires delivered

2.580 billion

Carbon footprint

Gross 146 kt CO2

26% decrease vs
H1 2019

Net 0 kt CO2

Waste to landfill

26 tonnes

89% decrease vsQ2 2019

0 tonnes

Safe & healthy workplace

TRC = 0.25

22% decreased
TRC vs Q2 2019

TRC = 0.35

Sustainable supply chain

99%99% of risk suppliers
passed the audit

We achieved the highest
score in the CDP climate
disclosure: A-List

129% of our commitment(cumulative from 2015) completed

We are named DJSI
Industry Leader for 3
consecutive years

80%>2 billion

90% performancerate

We received the EcoVadis
Platinum Medal and are in the
top 1% of companies assessedOutlook•

Considering the persistent uncertainty about the future course of
the pandemic, and the length and depth of the impact on the
global economy, Signify still doesn’t provide financial guidance atthis point in time•

However, Signify is confident in the underlying resilience of its
businesses and operating model, and that its liquidity needs arewell covered by the financial framework it has in place•

In line with the company’s policy to prioritize future deleveraging,
Signify confirms its intention to utilize up to EUR 350 million to
reduce gross debt in 2020

21

Q&A

22

Currency movements negatively impacted sales and Adjusted EBITA
Q2 20 Sales FX Footprint (% of total)
Other
Currencies
27%

EUR
23%

CNY
8%

USD
43%

23

Key observations• Negative FX effect on sales of -80 bps, largely driven
by CNY and emerging market currencies depreciation•

Negative FX effect on Adjusted EBITA of EUR 10m,
and -60 bps on the Adjusted EBITA margin, mainly
due to emerging market currencies•

Our policy is to hedge 100% of committed FXtransactions and anticipated transactions up to 80%
in layers over the next 15 months

Net income increased to EUR 81m, mainly as a result of lower restructuringcosts & other incidentals, and one-time non-cash tax benefits
Key observations

From Adj. EBITA to net income (in EURm)

1
2

3

24

Q2 19

Q2 20

Adj. EBITA

133

133

- Restructuring

-14

-2

- Acquisition related charges

-1

-15

1

- Other incidental items

-13

4

2

EBITA

104

119

Amortization

-24

-32

Related to Cooper Lighting and Klite
Recurring by nature and relate to the separation, company
name change, environmental provision for inactive sites anddiscounting effect of long-term provisions

EBIT

80

87

Net financial income / expenses

-12

-16

Income tax expense

-19

10

3

Results from investments in associates

10

Lower tax expense driven by one-time non-cash tax benefits
from changes in the organizational structure

Net income

5081Free Cash Flow of EUR 158m
Key observations

Free cash flow (in EURm)
Income from operations
Depreciation and amortization
Additions to (releases of) provisions
Utilizations of provisions
Change in working capital
Net interest and financing costs paid
Income taxes paid
Net capex
Other
Free cash flow
As % of sales

25

Q2 19
80
67
29
-53
56
-6
-20
-27
-8
121
8.2%

Q2 20
87
86
24
-47
22
-13
0
-5
3
158
10.8%

•

Free cash flow increased by EUR 37m to EUR 158m,
reflecting the consolidation of Cooper Lighting, lower
cash tax paid, and proceeds from the sale of real estate(EUR 20m)•

Free cash flow in Q2 20 included restructuring cash-out
of EUR 12m (Q2 19: EUR 27m)