Q4 & Full Year 2019 results

January 31, 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, 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, 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 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 Report2018 and the semi-annual report 2019. 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 notnecessarily 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 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 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 inaccordance with the accounting policies as stated in the Annual Report 2018 and the semi-annual report 2019.
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2

Content
Summary performance 2019 by Eric Rondolat
Financial performance for Q4 19 by Stéphane Rougeot

FY 19 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A3

Summary financial & business performance 2019

%

4

•

LED-based comparable sales grew by 1.4% in FY 19 and represented 78% of sales•

Signify’s installed base of connected light points increased from 44m at YE18 to 56m at YE19•

Adj. EBITA margin improved by 30 bps to 10.4%, including a currency impact of -20bps•

Adj. indirect costs decreased by EUR 125m, or -6,6%, on a currency & scope comparable basis•

FCF of EUR 529m (FY 18: EUR 306m), or 8.5% of sales, incl. a EUR 71m positive impact from IFRS 16•

Proposed 2019 dividend per share of EUR 1.35 (+3.8%) in cash•

Enhanced focus on growth initiatives to strengthen our market leadership and improve our growth profile•

Substantial acquisitions made in 2019 to strengthen our business and financial profile•

Solid progress made on our 2020 Sustainability goals; well on track to become carbon neutral this year

Content
Summary performance 2019 by Eric Rondolat
Financial performance for Q4 19 by Stéphane Rougeot

FY 19 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A

5

The growing profit engines reported a CSG of -0.7% and Adjusted EBITA
margin improvement of 180 bps in Q4 19

6vs LY (EURm)

Adjusted
EBITA %vs LY (bps)

77

+8

14.3%

-10

-1.5%

92

+7

12.7%

+70

Home

9.5%

38

+22

19.8%

+1,090

Total

-0.7%

207

+36

14.2%

+180

Q4 19

CSG %

Adjusted EBITA

LED

-2.9%

Professional(EURm)

LED Adjusted EBITA margin remained solid at 14.3%
Sales (in EURm) & comparable sales growth (in %)
0.2%

-0.2%

-1.8%

Key observations for Q4 19•

Nominal sales increased by 12.3% reflecting theconsolidation of the Klite acquisition•

Comparable sales decreased by 2.9%
• LED lamps delivered a solid performance• LED electronics continued to be impacted by lower
customer demand in most regions•

Adjusted EBITA margin remained solid at 14.3%, mainly
as a result of ongoing procurement savings

0.9%
-2.9%

481

449

445

457

541

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

Adjusted EBITA (in EURm & as % of sales)
14.4%

7

14.3%
11.9%

12.0%

12.3%

69

54

53

56

77

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

LED business highlights
Launched the WiZMote
control device for quick
access and control

Introduced remotecontrol-based fan ceilingcategory in China

Launched first
generation of roundshape Industry drivers

Launched first D4i driver(Xitanium SR 165W C170
sXt D4i)

•

•

•

•

•
•

8

Plug & play connected
light right out of the box
8 settings allow for quick
access and control
Pair the WiZMote to the
WiZ app for enriched,personalized settings••

New technology withintegrated lighting andcooling system
Strengthens our all-inone lighting ceiling
portfolio by expanding
offering for home users
Available in China since
October 2019••

Allows for very compact
and round high bay LED
fixtures
Generate more than 40%
energy savings compared
to HID fixtures
Watertight metal
enclosure enables usage
in harsh industrial
environments••

D4i is the new standard
for interoperability ofdrivers and sensors
Allows for easy exchangeof different IoT nodes or
sensors on outdoor
fixtures
Helps municipalities totransition to connected
outdoor lighting

Professional Adjusted EBITA margin improved by 70 bps, mainly driven byindirect cost savings
Sales (in EURm) & comparable sales growth (in %)
-1.5%
-6.9%

1.7%
-5.6%

Key observations for Q4 19•

CSG of -1.5%, mainly due to• Challenging market conditions, most notably in India
and China• Lower market activity in the US•

Adjusted EBITA margin increased by 70 bps to 12.7%,
mainly driven by indirect cost reductions

-1.5%

715

599

632

698

720

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

Adjusted EBITA (in EURm & as % of sales)
12.0%

12.3%

12.7%

8.8%

5.3%

9

85

32

55

86

92

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

Professional business highlights
Launched tailor-made3D-printed luminaires
for circular economy

Extended the reach of
Trulifi through three
new partnerships

Provided Australis
Seafoods withaquaculture LED lighting

Launched Interact
Industry in collaboration
with Pilkington

•

•

•
•

•

•

•

10

Reduces carbon
footprint by 47% vsmetal luminaires
Provides customers witha level of flexibility thattraditional
manufacturing can’t
offer
To install thousands of
3D-printed luminaires at
M&S in UK•••

With Vodafone Germany
we combine 4G/5G
connectivity with LiFi
With Latecoere wedevelop LiFi systems forcommercial airplanes
With Ellamp we develop
LiFi systems for busses
and trains
More than 100 pilots
worldwide•

Lights mimic the sun
Allows fish to see feedbetter and grow better,
resulting in higher Feed
Conversion Rate andcleaner water
Lights are submerged at
5 meters, reducing
infections by sea lice
who live closer to thesurface••

Provides industrial
businesses with energy
savings
Establishes safer working
environment inwarehouses and factory
environments
Delivers insights into
space usage, boosting
efficiency

Home Adjusted EBITA margin more than doubled to 19.8%
Sales (in EURm) & comparable sales growth (in %)
24.4%
19.0%

•

CSG of +9.5%, mainly driven by• Particularly strong performance in Europe• Successful introduction of innovative offers•

Adj. EBITA margin improved from 8.9% to 19.8%, driven
by higher top-line, gross margin improvement and cost
optimization

191

176
115

107

-2.6%

Q4 18

Key observations for Q4 19

108

9.5%

-3.1%

Q1 19

Q2 19

Q3 19

Q4 19

Adjusted EBITA (in EURm & as % of sales)
38
19.8%
16
8.9%

-7

-8

-3
-2.6%

Q4 18
11

-6.1%
Q1 19

-7.8%
Q2 19

Q3 19

Q4 19

Home business highlights
Introduced voice control
for Philips Hue PlayHDMI Sync box

Launched Philips Hue
outdoor range with lowvoltage lighting options

Expanded Philips Hue
outdoor range with newwall and pathway lights

Added Jung, Voltus andInsta to our Friends of
Hue program

•

•

•

•

•

12

Allows easy voice control
with Amazon Alexa,
Apple Siri and Google
Assistant
Infrared receiver featureenables the use ofstandard remote controls
as well as the universal
remote••Involves minimal
installation effort
Offers plug-and-playsolution that does not
require an electrician
Includes additions toexisting families of walllights, path lights andspotlights••

Brings any outdoor space
to life
Makes setting the moodfor any occasion easierthan ever before
Provides effortless
personalization to create
perfect atmosphere
outdoors•

Voltus, Jung and Insta
introduce new smart
light switches
Friends of Hue Switches
program has grown to 13
partners since 2018

Cash engine – Lamps Adjusted EBITA margin remained solid at 17.3%
Sales (in EURm) & comparable sales growth (in %)-19.3%-17.9%-18.3%-20.3%-25.5%

345

309

286

274

290

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

Key observations for Q4 19•••

Comparable sales decreased by 18.3%
Lamps continues to deliver on its ‘last man standing’strategy
Continued market share gains•

Adjusted EBITA margin remained solid at 17.3%

Adjusted EBITA (in EURm & as % of sales)
20.5%
17.5%

13

19.5%

19.4%

17.3%

60

63

56

53

50

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

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

12.4%

214

Q4 18

14

13.2%

+80 bps(8)

Volume / Mix

(71)

Price

25

10

2

232

Currency

Scope/Other

Q4 19

60

CoGS

Indirect Costs

WoCa decreased by 220 bps as % of sales, reflecting continued focus on
improving WoCa, with lower receivables and higher payables
Working capital1 (in EURm & as % of sales)

Inventories (in EURm & as % of sales)
14.9%

9.4%

9.3%

15.9%

16.5%
14.0%

8.0%
6.2%2

587

Q1 19

503

588

Q2 19

Q3 19

10.5%

10.1%

9.0%

388

943

999

1.030

874

Q4 19

Q1 19

Q2 19

Q3 19

Q4 19

15.3%

15.2%

-220 bps

14.1%

612

694

659

536

957

1.009

994

878

Q1 18

Q2 18

Q3 18

Q4 18

Q1 18

Q2 18

Q3 18

Q4 18

1 Working capital includes inventories, trade and other receivables, trade and other payables, other current assets & liabilities, derivative financial assets & liabilities

15

13.8%

8.4%

2 Excluding the impact of the consolidation of Klite, working capital as % of sales was 6.8%

+20 bps

Net debt decreased by EUR 239m, driven by strong FCF
In EURm
857
215
618

152

26

4

30

1

69

FCF: EUR+308m

Net debt
end of Q3 19

16

EBITDA

Change inworking capital

Net capex

Change inprovisions

Interest & Tax Other FCF items*Other includes cash used for acquisition of business, new lease liabilities following the application of IFRS 16, and cash received for sale of business and derivatives

Other*Net debt
end of Q4 19

Content
Summary performance 2019 by Eric Rondolat
Financial performance for Q4 19 by Stéphane Rougeot

FY 19 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A17

Growing profit engines significantly improved profitability and FCF
Adj. EBITA margin (%)

Adj. EBITA contribution (in EUR m)

LED, Professional & Home
+180 bps

Free Cash Flow (in EUR m)
LED, Professional & Home vs cash engine

10.4%

8.6%

559
302

222
370

2018

2019

425

525

-87

-100

2018

2019

Growing profit engines• Operational profitability improvedby 180 bps supported by each BG

18

Cash engine• The growing profit engines
represent 70% of the Adj. EBITA
excl. other, versus 58% in 2018

308
222

2018
Growing profit engines

2019
Cash engine

Other• All BGs generated positive FCF• The growing profit engines substantially
increased FCF to EUR 559m
• FCF growing profit engines more than offset
FCF decline in Lamps

Market dynamics impacted top-line in FY19, solid improvements in margins
Growing profit engines
LED CSG & Adj. EBITA margin (%)
CSG

0.4%

-1.1%

Professional CSG & Adj. EBITA margin (%)
CSG

-0.4%

-1.7%

Cash engine
Home CSG & Adj. EBITA margin (%)
CSG

-3.8%

11.3%
3.8%

11.7%

12.7%

9.5%

Lamps FCF (in EUR m)

308

10.0%

222

-8.1%

2018

2019

• LED lamps delivered a solid
performance while sales in
LED electronics were
impacted by lower customer
demand in most regions• Margin improvement driven
by procurement savings andlower indirect costs
19

2018

2019

2018

2019

• CSG reflects weaker market
conditions in various regions(Europe, India)• CSG increased on the back of aparticularly strong
performance in Europe• Margin improvement as
procurement and indirect
cost savings more than offset
the negative impact of priceand mix• Margin improved, driven byhigher top line, gross margin
improvement and cost
optimization

2018

2019

• Continued to optimize
cash to fund growth• FCF as % of sales
remained solid at 19.2%

Adj. indirect costs excl. currency/scope effect decreased by EUR 125m in FY19
Adj. indirect cost savings per quarter (in EUR m)

Key observations• EUR 125m saved in FY19, down 6.6%, or 70

bps of sales, excl. FX/scope• Progress made in 2019:

29.8%
33

•

Market organization rightsizing

6•

Productivity improvements

22

25

•

Supply chain optimization

-6

-7

•

Continuation of transformation programsin support functions

29.0%

28
16

39

-6

37

-9

1.896

Adj. indirect costs Adj. indirect costs
FY18
FY19

-12

Q1 19

Q2 19

Net savings (excl. currency/scope effect)

20

Q3 19

Q4 19

Currency effect on adj. indirect costs

1.813

Scope

Signify has substantially improved its business and financial profile
Successful transition
from conventional to
LED

Substantial
improvement in
profitability

Transition to an assetlight business model

Strong FCF generation

Total LED sales(as % of sales)

Adjusted EBITA margin

Gross capex as % of sales

FCF as % of sales

+20%
CAGR

78%

+400
bps

10.4%
8.5%

6.4%

2.8%

26%

1.4%
~1.0%

2013

2019

Total LED-based sales
grew by a CAGR of +20%
since 2013

2013

2019

Adj. EBITA margin
improved significantly

2013

2019

Gross capex as % of sales
has been reduced
strongly

2013

2019

FCF of EUR 529m is
highest since IPO

Signify is well on track to achieve its 2020 Sustainability targets

Sustainable operations

Sustainable
revenues

2019 result

2020 target

Increasing energy
efficiency of portfolio

Sustainable revenues

82.5%

LED lamps &luminaires delivered

2.3 billion

Carbon footprint

Net 61 kt CO2

58% decrease vs
FY 2018

Net 0 kt CO2

Waste to landfill

726 tonnes

70% decrease vsQ4 2018

0 tonnes

Safe & healthy workplace

TRC = 0.32

9% ahead of the 2020
target

TRC = 0.35

Sustainable supply chain

99%99% of risk suppliers
passed the audit

90% performance
rate

Achieved highest score in
the CDP climate disclosure:
A-List since IPO
22Achievement

117% of our commitment(cumulative from 2015) completed

DJSI Industry Leader for 3
consecutive years

80%>2 billion

We received the EcoVadis Gold
Medal and are in the top 2% ofcompanies assessed in our
sectorSignify offers an attractive dividend yield of 4.8%
Propose 2019 dividend of EUR 1.35 to be paid in cash in 2020
Key observations

Dividend 2019 (in EURm)
FY 2019•

In 2020, we propose to pay a dividend over 2019 of EUR 1.35 pershare, an increase of 3.8%•

Following the announced acquisition of Cooper Lighting, Signify
will prioritize deleveraging•

Strong FCF expected to drive down Signify’s net leverage ratio
from around 2x at closing to below 1x net debt/EBITDA within 3
years; Intend to use EUR 350m to reduce debt in 2020•

Capital allocation has been aligned as follows:

Net income attributable to shareholders

267

Restructuring costs

99

Incidentals*

32

Non-controlling interests-5

Tax impact-35

Continuing net income

359• Continue to pay a stable to increased dividend per share

Total dividend

170• Continue to invest in R&D and other organic growth
opportunities

Total number of outstanding shares (million)**126• Signify will focus on integrating Cooper Lighting; M&A will havea lower priority

EUR 1.35 per share
23* Other incidentals consists of acquisition-related charges, transformation-related costs and other incidentals** Excluding treasury shares

EUR 1.2bn returned to shareholders since IPO, incl. proposed 2019 dividend
Cash available•

Continued free cash flow generation•

Managing our financial ratios to maintain a financing
structure compatible with an investment-grade profile

Return to shareholders since IPO (in EURm)
1,656

1,225

Cash uses since IPO••

Dividend of EUR 662m since the IPO, including proposed
dividend of 2019

Seized non-organic growth opportunities, e.g. Klite, WiZ,
Once Inc. & iLOX•

Contributed EUR 132m to US Pension Fund since the IPO•

Repurchased shares for EUR 74m to cover performance
share plans•

Repurchased shares for EUR 563m for cancellation

24

Cash generation 2016-2019

563

Share repurchases
for cancellation

662

Dividend

Shareholder returns since IPO

Substantial acquisitions made in 2019 to strengthen our business andfinancial profile
•
•

•
•
•

Extends Signify’s leadership in connected
lighting by stepping into the Wi-Fi based
smart lighting market
Closed Q2 2019•

Strengthens Signify’s position in the
supply chain of LED lamps andluminaires
Brings additional scale and innovation
power to Klite, allowing it to generate
further cost efficiencies
Closed Q4 2019

•

•

•
•
•

25

Enables Signify to capture attractive
growth in agricultural lighting
Closed Q2 2019

Strengthens Signify’s market positionin North America, with increased
innovation power and morecompetitive offerings
Improves the business mix withProfessional revenues increasing from
42% to 53% of total sales
Cost synergies of > USD 60m per year
Expected closing in Q1 2020

Content
Summary performance 2019 by Eric Rondolat
Financial performance for Q4 19 by Stéphane Rougeot

FY 19 highlights by Eric Rondolat
Outlook & conclusion by Eric Rondolat
Q&A

26

Outlook 2020%

• Signify aims to achieve a further improvement in the Adjusted EBITA margin• Free cash flow expected to be at least 6% of sales• The outlook excludes the announced acquisition of Cooper Lighting Solutions• An update on the outlook will be provided after the closing of Cooper Lighting Solutions• Closing expected in Q1 2020, as previously indicated27Adaptation of business structure to strengthen customer centricity•

Adapt the business structure to enable:• Stronger customer focus• Enhanced specialization• Increased execution speed•••

Consolidation of 4 BGs to 3 divisions
Focus our business around our customers and create one global operations team to drive customer and business excellence
As a consequence, Signify intends to adapt its segment reporting accordingly
Digital Solutions

Digital Products

Conventional products

Professional customers

Professional customers

Professional customers

OEM

OEM

Consumers

Consumers

LED lamps, luminaires andconnected products, LED
electronics

Conventional lamps and electronics

Customers

Products

28

Luminaires, lighting systems andservices

Q&A

29

78% of sales is LED-based and growing by 1.4% on a comparable basis
LED-based sales continue to grow by CAGR of 20%(in % of total sales)

LED-based sales of EUR 4.8bn in FY 19, CSG of 1.4%

78%
65%

71%

LED
Professional
51%(CSG 0.5%)

55%
43%
34%
26%

2013

30

2014

2015

2016

2017

2018

2019

BG LED
39%(CSG -1.1%)

LED Home
10%(CSG 14.8%)

Currency movements had a positive impact on sales and Adjusted EBITA
Q4 19 Sales FX Footprint (% of total)

EUR
31%

Other
Currencies
36%

CNY
10%

31

USD
23%

Key observations•

Currency movements positively impacted sales andAdjusted EBITA•

Sales impact of +2.0%, mainly driven by US dollar
appreciation•

Adjusted EBITA impact of EUR +10m, and +30 bps on
the Adjusted EBITA margin, mainly from 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 reduced to EUR 98m, mainly due to higher restructuringcosts, acquisition related charges, and other incidental items
Key observations

From Adjusted EBITA to net income (in EURm)
Q4 18

Q4 19

Adjusted EBITA

214

232

- Restructuring

-27

-42

1

- Acquisition related charges

-1

-11

1

2

- Other incidental items

11

-15

2

EBITA

197

164

Includes charges related to Cooper Lighting and Klite
Q4 18 included a gain of EUR 16m associated with tax
related reliefs linked to the separation

Amortization

-24

-26

EBIT

173

138

Net financial income / expenses

-7

-11

Income tax expense

-47

-29

3

0

0

Income tax expense decreased by EUR 18m mainly
due to lower taxable earnings in Q4 19

119

98

3

Results from investments in associates
Net income32Free Cash Flow of EUR 308m
Key observations

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

33

Q4 18
173
58
28
-73
147
-7
-22
-14
-11
279
16.2%

Q4 19
138
77
65
-69
152
-4
-26
-26
1
308
17.6%

•

Free cash flow of EUR 308m, including a positive impact
of EUR 18m related to IFRS 16•

Free cash flow in Q4 19 included lower restructuring
cash-out of EUR 25m (Q4 18: EUR 36m)