Signify – Signify’s fourth quarter and full-year results 2023

Signify reports full-year sales of EUR 6.7 billion, operational profitability of 10.0% and a free cash flow of 8.7% of sales

 

Full year 2023¹

• Signify’s installed base of connected light points increased from 114 million at YE 22 to 124 million at YE 23
• On track for three Brighter Lives, Better World 2025 sustainability program commitments
• Sales of EUR 6,704 million; nominal sales decline of -10.8% and CSG of -8.3%
• LED-based sales represented 85% of total sales (FY 22: 83%)
• Adj. EBITA margin of 10.0% (FY 22: 10.1%)
• Net income of EUR 215 million (FY 22: EUR 532 million incl. one-time effects of EUR 184 million)
• Free cash flow of EUR 586 million (FY 22: EUR 445 million), representing 8.7% of sales

 

Fourth quarter 2023

• Sales of EUR 1,734 million; nominal sales decline of -12.3% and CSG of -7.7%
• Adj. EBITA margin of 12.1% (Q4 22: 10.2%)
• Net income of EUR 59 million (Q4 22: EUR 86 million)
• Free cash flow of EUR 295 million (Q4 22: EUR 364 million)

 

Dividend

• Proposal to increase its cash dividend to EUR 1.55 per share over 2023 (FY 22: EUR 1.50)

 

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company’s fourth quarter and full-year 2023 results.

“In Q4, our gross margin was again strong, confirming our improving operational performance. This brought our adjusted EBITA margin into double digits for the full year. While we continued to face adverse market conditions in some geographies and in the consumer and OEM segments, we have gained share with our professional connected systems. We over-delivered against our free cash flow guidance, with close to EUR 600m in cash, representing 8.7% of sales. We are also proud to have surpassed the circular revenues sustainability target two years ahead of schedule. I would like to thank our employees and partners for their continued hard work and dedication to help us achieve these results,” said Eric Rondolat, CEO of Signify.

“While we anticipate challenging conditions will persist through the year ahead, I am confident in our strategy and in our proven ability to adapt. In the past quarter, we introduced a new operating model and measures that will enhance our performance and deliver annualized savings in excess of EUR 200 million. We will continue to protect our gross margin and enhance our focus on costs. We have developed strategic advantages that will help us to gain share and improve profitability while generating a strong free cash flow in 2024.”

 

Brighter Lives, Better World 2025

Signify completed the third year of its Brighter Lives, Better World 2025 sustainability program, making continued progress towards doubling its positive impact on the environment and society by the end of 2025. Signify is on track to deliver on three of its sustainability program commitments:

• Double the pace of the Paris Agreement

Signify is on track to reduce emissions across the entire value chain by 40% against the 2019 baseline – double the pace required by the Paris Agreement. This is driven by Signify’s leadership in energy efficient and connected LED lighting solutions, which significantly reduce emissions during the use phase.

• Double Circular revenues

Circular revenues increased to 33%, up 1% over the third quarter, surpassing the 2025 target of 32%. The main contribution was from serviceable luminaires, with a strong performance from both consumer and professional.

• Double Brighter lives revenues

Brighter lives revenues remained at 31%, on track to reach the 2025 target of 32%. This includes a strong contribution from professional luminaires that support the well-being of wildlife.

• Double the percentage of women in leadership

The percentage of women in leadership positions remained at 29%, slightly off track versus the 2023 target. Signify continues its actions to increase representation through focused hiring practices for diversity across all levels, and through retention and engagement actions to reduce attrition.

 

In the fourth quarter, Signify received several external recognitions for its leadership in Sustainability. Signify was included in the DJSI World Index for the 7th consecutive year, was included in the DJSI Europe Index for the 6th time, and achieved the EcoVadis Platinum rating for the 4th consecutive year.

 

Outlook

For 2024, Signify expects:

• An Adjusted EBITA margin improvement of up to 50 bps, including first benefits from the announced restructuring program
• Free cash flow generation of 6-7% of sales, including an incremental and non-recurring negative impact of around EUR 150 million related to the restructuring program and a reduction of US pension liabilities

 

Capital allocation 

Signify proposes a cash dividend of EUR 1.55 per share for 2023, in line with its policy to pay an increasing annual cash dividend per share year on year. The dividend proposal is subject to approval at the Annual General Meeting of Shareholders (AGM) to be held on May 14, 2024. Further details will be provided in the agenda for the AGM. 

In line with its aim to maintain a robust capital structure and an investment grade credit rating, Signify expects to further deleverage its gross debt and reduce its US pension liabilities in 2024. 

Signify will continue to invest in organic and inorganic growth opportunities in line with its strategic priorities.

 

Conference call and audio webcast

Eric Rondolat (CEO) and Javier van Engelen (CFO) will host a conference call for analysts and institutional investors at 9:00 a.m. CET to discuss the fourth quarter and full-year 2023 results. A live audio webcast of the conference call will be available via the Investor Relations website.

 

Financial calendar

February 27, 2024: Annual Report 2023

April 26, 2024: First quarter results 2024

May 14, 2024: Annual General Meeting

May 16, 2024: Ex-dividend date

May 17, 2024: Dividend record date

June 3, 2024: Dividend payment date

July 26, 2024: Second quarter and half-year results 2024

October 25, 2024: Third quarter results 2024

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

 

 

Financial review

 

Full year 

Nominal sales decreased by 10.8% to EUR 6,704 million, including a negative currency effect of 3.3%, mainly due to the depreciation of the USD and CNY, and a positive effect of 0.8% from the consolidation of Fluence, Pierlite and Intelligent Lighting Controls. Comparable sales declined by 8.3%, mainly due to weakness in consumer, OEM and indoor professional lighting. Outdoor professional lighting remained resilient throughout the year.

The Adjusted gross margin improved by 240 bps to 39.7%, mainly due to effective COGS management and positive sales mix. Adjusted indirect costs as a percentage of sales increased by 210 bps to 31.0%, mainly due to an under-absorption of fixed costs.

Adjusted EBITA was EUR 670 million. The Adjusted EBITA margin was 10.0%, broadly in line with 2022, as the gross margin improvement was offset by an under-absorption of fixed costs.

Restructuring costs were EUR 167 million, acquisition-related charges were EUR 14 million and incidental items had a net negative impact of EUR 40 million.

Net income decreased to EUR 215 million, mainly due to lower Adjusted EBITA, higher adjusted items and financial expenses, partly offset by lower income tax expense. Net income in 2022 included a one-time gain on the disposal of non-strategic real estate assets of EUR 184 million.

Fourth quarter

Nominal sales decreased by 12.3% to EUR 1,734 million, including a negative currency effect of 4.9%, mainly due to the depreciation of the US dollar, and a positive effect of 0.2% from acquisitions. Comparable sales declined by 7.7%, due to persistent weakness in most of Signify’s end markets.

The Adjusted gross margin increased by 370 bps to 40.8%, mainly driven by effective COGS management and a positive sales mix effect. Adjusted indirect costs as a percentage of sales increased by 170 bps to 30.0%, mainly due to under-absorption of fixed costs.

Adjusted EBITA increased to EUR 209 million. The Adjusted EBITA margin increased by 190 bps to 12.1%, mainly driven by the continued recovery of gross margin.

Restructuring costs were EUR 83 million, reflecting an increase in provisions related to the recently announced structural cost reduction program. In addition, acquisition-related charges were EUR 5 million and incidental items had a net negative impact of EUR 13 million. The incidental items were largely related to a one-day FX loss from the devaluation of the Argentine peso by the Argentinian government.

Net income decreased to EUR 59 million, as higher adjusted EBITA, lower financial expenses and lower income tax expense were offset by the increase in restructuring costs.

The number of employees (FTE) decreased from 34,619 at the end of Q4 22 to 31,920 at the end of Q4 23. The year-on-year decrease is mostly related to a reduction of factory personnel due to lower production volumes. In general, the number of FTEs is affected by fluctuations in volume and seasonality.

 

 

Digital Solutions

Full year

Nominal sales decreased by 6.9% to EUR 3,937 million, including a negative currency effect of 3.1% and a positive effect of 1.5% from the consolidation of Fluence, Pierlite and Intelligent Lighting Controls. Comparable sales decreased by 5.4%, against a high base of comparison of 7.8% growth in 2022. The Adjusted EBITA margin increased by 70 bps to 10.7%, mainly driven by gross margin recovery.

Fourth quarter

Nominal sales decreased by 7.5% to EUR 1,022 million, including a negative currency effect of 5.1% and a positive effect of 0.4% from the consolidation of Intelligent Lighting Controls. Comparable sales decreased by 2.9%, as continued strength in professional systems and services was more than offset by softness in indoor professional and horticulture lighting. The Adjusted EBITA margin increased by 270 bps to 12.4%, mainly driven by gross margin recovery

 

 

Digital Products

Full year

Nominal sales decreased by 14.2% to EUR 2,117 million, including a negative currency effect of 3.8%. Comparable sales decreased by 10.5% as growth in LED lamps and luminaires was more than offset by weakness in the consumer connected and OEM businesses. The Adjusted EBITA margin decreased by 230 bps to 9.7%, mainly due to an under-absorption of fixed costs.

Fourth quarter

Nominal sales decreased by 14.3% to EUR 566 million, including a negative currency effect of 4.9%. Comparable sales declined by 9.4% due to continued weakness in consumer and OEM, while consumer connected improved sequentially. The Adjusted EBITA margin decreased by 80 bps to 13.3%, mainly as a result of under-absorption of fixed costs, partly offset by a positive sales mix effect.

 

 

Conventional Products

Full year 

Nominal sales decreased by 20.9% to EUR 627 million, including a negative currency effect of 2.5%. Comparable sales decreased by 18.4%. The Adjusted EBITA margin increased by 600 bps to 20.6%, driven by gross margin recovery and cost discipline.

Fourth quarter 

Nominal sales decreased by 33.0% to EUR 136 million, including a negative currency effect of 3.4%. Comparable sales decreased by 29.6% as the structural decline of the business was exacerbated by the fluorescent bans in Europe, which came into effect in February and August. The Adjusted EBITA margin increased by 440 bps to 17.3%, mainly driven by gross margin recovery.

 

 

Other

Full year

‘Other’ represents amounts not allocated to the operating segments and includes costs related both to central R&D activities to drive innovation, and to Group enabling functions. Adjusted EBITA was EUR -86 million (2022: EUR -75 million) and EBITA was EUR -147 million (2022: EUR 138 million). In 2023, EBITA included restructuring costs of EUR 59 million, and a negative impact from incidental items and acquisition-related charges of EUR 1 million. In 2022, EBITA included a one-time gain of EUR 184 million related to the disposal of non-strategic real estate assets in Q2 22.

Fourth quarter 

Adjusted EBITA was EUR -17 million (Q4 22: EUR -25 million) and EBITA was EUR -67 million (Q4 22: EUR -16 million). EBITA included a negative impact from restructuring costs and acquisition-related charges of EUR 50 million.

 

 

Sales by market

Full year 

In 2023, most markets were impacted by softness in the consumer segment, the OEM business and indoor professional lighting. Outdoor professional lighting showed resilience. In Europe, comparable sales declined by 8.7%, as most markets declined. In the Americas, comparable sales declined by 8.9%, mainly due to the United States, partly offset by strong growth in Latin America. In the Rest of the World, comparable sales declined by 4.7%, due to weakness across most markets. Global businesses’ comparable sales declined by 14.4%, mainly due to Klite and Fluence.

Fourth quarter 

In Europe, comparable sales declined by 8.2%, due to softness in most markets. In the Americas, comparable sales declined by 7.3%, as solid growth in Latin America and Canada was not able to offset weakness in the United States. In the Rest of the World, comparable sales declined by 4.7%, due to persistent weakness in most markets. Global businesses’ comparable sales declined by 16.3%, mainly due to Fluence.

 

 

Working capital

Fourth quarter 

Compared to September 2023, working capital decreased by EUR 171 million to EUR 461 million, mainly driven by a further reduction of inventories, lower receivables and other working capital items, partly offset by lower payables. As a percentage of last twelve-month sales, working capital decreased by 220 bps to 6.9%. 

Compared to December 2022, working capital decreased by EUR 103 million, mainly due to lower inventories, lower receivables and other working capital items, partly offset by lower payables. As a percentage of last twelve-month sales, working capital decreased by 60 bps. Including last twelve-month sales pro forma for Fluence and Pierlite, working capital decreased by 50 bps.

 

 

Cash flow analysis

Full year 

Free cash flow increased to EUR 586 million, mainly driven by lower inventories, which benefited from shorter lead times, and lower receivables. Last year’s free cash flow benefited from cash proceeds from the disposal of non-strategic real estate assets. Free cash flow included a restructuring payout of EUR 69 million (2022: EUR 54 million).

In 2023, Digital Solutions and Digital Products continued to generate the majority of Signify’s free cash flow, contributing 88% of Signify’s free cash flow excluding ‘Other’ (2022: 90%). In 2022, ‘Other’ free cash flow included the Q2 22 proceeds from the disposal of non-strategic real estate assets. 

Fourth quarter 

Free cash flow decreased to EUR 295 million, mainly due to a lower inflow from working capital, as Q4 last year benefited from a stronger reduction of inventories. Free cash flow included a restructuring payout of EUR 16 million (Q4 22: 11 million).

 

 

Net debt and total equity

Fourth quarter 

Compared with the end of September 2023, the cash position increased by EUR 469 million to EUR 1,158 million, mainly driven by free cash flow generation and financial proceeds from debt issuance. In Q4, Signify issued longterm debt to refinance part of the debt that will mature in 2024. As a result, gross debt increased by EUR 201 million to EUR 2,230 million. As a result of the higher cash position, net debt reduced to EUR 1,071 million. Total equity decreased to EUR 2,947 million (Q3 23: EUR 3,084 million), primarily due to currency translation results. 

Compared with the end of December 2022, the cash position increased by EUR 481 million, while gross debt increased by EUR 197 million. As a result, net debt decreased by EUR 285 million. At the end of December 2023, the net debt/EBITDA ratio was 1.7x (Q4 22: 1.3x).

 

 

Other information

• Appendix A – Selection of financial statements 
• Appendix B – Reconciliation of non-IFRS financial measures 
• Appendix C – Financial Glossary

 

 

Appendix A – Financial statement information

A. Condensed consolidated statement of income

 

B. Condensed consolidated statement of comprehensive income

 

C. Condensed consolidated statement of financial position

 

D. Condensed consolidated statement of cash flows

 

 

Appendix B – Reconciliation of non-IFRS financial measures

 

 

 

 

 

Appendix C – Financial glossary

• Acquisition-related charges 
  • Costs that are directly triggered by the acquisition of a company, such as transaction costs, purchase accounting related costs and integration-related expenses.
• Adjusted EBITA 
  • EBITA excluding restructuring costs, acquisition related charges, and other incidental charges.
• Adjusted EBITA margin 
  • Adjusted EBITA divided by sales to third parties (excluding intersegment). ‘Operational profitability’ also refers to this metric.
• Adjusted gross margin 
  • Gross margin, excluding restructuring costs, acquisition-related charges, and other incidental items attributable to cost of sales.
• Adjusted indirect costs 
  • Indirect costs, excluding restructuring costs, acquisition-related charges, and other incidental items attributable to indirect costs.
• Adjusted R&D expenses 
  • Research and development expenses, excluding restructuring costs, acquisition-related charges, and other incidental items attributable to research and development expenses.
• Adjusted SG&A expenses 
  • Selling, general and administrative expenses, excluding restructuring costs, acquisition-related charges, and other incidental items attributable to selling, general and administrative expenses.
• Brighter lives revenues 
  • Percentage of total revenues coming from all products, systems and services contributing to Food availability, Safety & security, or Health & well-being.
• Changes in scope 
  • Consolidation effects related to acquisitions.
• Circular revenues 
  • Percentage of total revenues coming from products, systems and services designed for a circular economy, categorized as serviceable luminaires (incl. 3D-printing), circular components, intelligent systems, or circular services.
• Comparable sales growth (CSG) 
  • The period-on-period growth in sales excluding the effects of currency movements and changes in consolidation and other changes.
• EBIT 
  • Income from operations.
• EBITA 
  • Income from operations excluding amortization and impairment of acquisition-related intangible assets and goodwill.
• EBITDA 
  • Income from operations excluding depreciation, amortization, and impairment of non-financial assets.
• Effects of changes in consolidation and other changes 
  • In the event a business is acquired (or divested), the impact of the consolidation (or deconsolidation) on the Group’s figures is included (or excluded) in the calculation of the comparable sales growth figures. Other changes include regulatory changes and changes originating from new accounting standards.
• Effects of currency movements 
  • Calculated by translating the foreign currency financials of the previous period and the current period into euros at the same average exchange rates.
• Employees 
  • Employees of Signify at the end of the period, expressed on a full-time equivalent (FTE) basis.
• Free cash flow 
  • Net cash provided by operating activities minus net capital expenditures. Free cash flow includes interest paid and income taxes paid.
• Gross margin 
  • Sales minus cost of sales.
• Incidental charges 
  • Any item with an income statement impact (loss or gain) that is deemed to be both significant and not part of normal business activity. Other incidental items may extend over several quarters within the same financial year.
• Indirect costs 
  • The sum of selling, general and administrative expenses and R&D expenses.
• Net capital expenditures 
  • Additions of intangible assets, capital expenditures on property, plant and equipment and proceeds from disposal of property, plant and equipment.
• Net debt 
  • Short-term debt, long-term debt minus cash and cash equivalents.
• Net leverage ratio 
  • The ratio of consolidated reported net debt to consolidated reported EBITDA for the purpose of calculating the financial covenant.
• R&D expenses 
  • Research and development expenses.
• Restructuring costs 
  • The estimated costs of initiated reorganizations which have been approved by the company, and generally involve the realignment of certain parts of the organization. Restructuring costs include costs for employee termination benefits for affected employees and other costs directly attributable to the restructuring, such as impairment of assets and inventories.
• SG&A expenses 
  • Selling, general and administrative expenses.
• Working capital 
  • The sum of inventories, trade and other receivables, other current assets, derivative financial assets minus the sum of trade and other payables, derivative financial liabilities and other current liabilities (excluding dividend-related payables).