Signify's second quarter & half year results 2018

Press Release

July 27, 2018

Signify reports second quarter sales of EUR 1.5 billion and operational profitability of 8.4%; Increases share repurchase program to EUR 300 million

Second quarter 2018¹

• Sales of EUR 1,537 million; a comparable decrease of 3.4%
• LED-based comparable sales growth of 4.7%, representing 70% of total sales (Q2 2017: 63%)

Adj. currency comparable indirect costs down EUR 46 million, a reduction of 8%; or 150 basis points of sales

Adj. EBITA of EUR 130 million (Q2 2017: EUR 159 million), impacted by currency effects of EUR -22 million

Adj. EBITA margin of 8.4% (Q2 2017: 9.4%), including a currency impact of -80 basis points

Net income of EUR 29 million (Q2 2017: EUR 73 million), reflecting higher restructuring costs, lower profitability and a real estate gain in Q2 2017

Free cash flow of EUR -31 million (Q2 2017: EUR -44 million excluding real estate proceeds)

Share repurchase program for 2018 increased from EUR 150 million to EUR 300 million

Half year 2018 highlights¹

• Sales of EUR 3,038 million, a comparable decrease of 3.4%; LED-based comparable sales growth of 5.3%
• Strong reduction in currency comparable indirect costs of EUR 84 million, or 120 basis points of sales
• Adjusted EBITA margin of 7.7% (H1 2017: 8.4%), including a currency impact of -60 basis points
• Working capital improved by 70 basis points to 10.5% of sales
• Free cash flow of EUR -37 million, an improvement compared with EUR -62 million, excluding real estate proceeds in H1 2017

Eindhoven, the Netherlands - Signify (Euronext: LIGHT), the world leader in lighting, today announced the company's 2018 second quarter results. "In the second quarter, profitability improved in Lamps, LED and Professional while the performance in Home remained weak. We significantly reduced our cost base and working capital, thereby structurally improving our cash generation," said CEO Eric Rondolat. "However, given the slow start to the year and as we expect ongoing challenging market conditions, we have decided to revise our sales outlook for the year. We expect our sales growth performance to improve in the second half, but this will not be enough to deliver positive comparable sales growth for the full year. At the same time, we confirm our profitability and cash flow outlook for the year as our teams remain focused on relentlessly executing our strategy, driving down our cost base while investing in innovation and growth opportunities."


Outlook 

Given the slow start to the year in Home, more challenging market and competitive dynamics in some geographies, as well as global scarcity in certain electronic components, Signify has decided to revise its sales outlook for 2018. The company expects its comparable sales growth in the second half to improve compared with the first half, however, the improvement is not expected to be sufficient to deliver positive comparable sales growth for the full year. 

Taking into account the anticipated cost savings in the second half of 2018, the company maintains its earlier outlook to improve the Adjusted EBITA margin from 9.6% in 2017 to 10.0-10.5% in 2018, albeit at the lower end of the 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.


Capital allocation

Increase in share repurchase program for 2018 from EUR 150 million to EUR 300 million
The company has decided to increase the amount allocated for share repurchases from EUR 150 million to EUR 300 million. In the first half of 2018, the company repurchased shares for an amount of EUR 71 million by participating in share disposals by its main shareholder. As a result, Signify intends to repurchase additional shares for up to EUR 229 million in the remainder of 2018, either in the open market or by participating in share disposals by its main shareholder.

Second contribution of USD 50 million to US pension fund planned for Q3 2018 
Signify has an active pension de-risking strategy in which it actively looks for opportunities to reduce the risks associated with the defined-benefit plans. As part of this strategy, it announced in Q2 2017 that it intended to contribute approximately USD 150 million to its US pension fund over the period 2017-2019 to further reduce liabilities and to lower interest expenses going forward. Following the first contribution of USD 50 million in Q3 2017, Signify intends to make the second contribution of USD 50 million in Q3 2018. 

Financial Review

Changes to financial reporting
Since the first quarter of 2018, Signify reports and discusses its financial performance based on the recently announced portfolio changes to further align the organizational structure with the strategy. In March 2018, the company provided an update to show the effect of changes to the business portfolio as well as changes to the allocation methods of centrally-managed costs and to the threshold for other incidental items as adjusting items when presenting certain non-IFRS measures such as Adjusted EBITA.

Second quarter				Six months
2017	2018	change	in € million, except percentages	2017	2018	change
		-3.4%	Comparable sales growth			-3.4%
		-5.5%	Effects of currency movements			-6.3%
		-0.6%	Consolidation and other changes			-0.6%
1,699	1,537	-9.5%	Sales	3,389	3,038	-10.4%
678	583	-14.1%	Adjusted gross margin	1,349	1,163	-13.8%
39.9%	37.9%		Adj. gross margin (as % of sales)	39.8%	38.3%
-463	-405		Adj. SG&A expenses	-946	-822
-85	-73		Adj. R&D expenses	-173	-153
-549	-478	12.9%	Adj. indirect costs	-1,119	-976	12.8%
32.3%	31.1%		Adj. indirect costs (as % of sales)	33.0%	32.1%
159	130	-18.4%	Adjusted EBITA	286	235	-17.7%
9.4%	8.4%		Adjusted EBITA margin (%)	8.4%	7.7%
-20	-53		Adjusted items	-25	-96
139	77	-44.4%	EBITA	262	140	-46.6%
111	54	-51.4%	Income from operations (EBIT)	206	94	-54.5%
-11	-13		Net financial income/expense	-22	-23
-26	-12		Income tax expense	-50	-22
73	29	-60.0%	Net income	134	49	-63.2%
-27	-31		Free cash flow	-26	-37
0.51	0.23		Basic EPS (€)	0.94	0.38
34,545	30,097		Employees (FTE)	34,545	30,097

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 presentaton click here.

Conference call and audio webcast   
Eric Rondolat (CEO) and Stéphane Rougeot (CFO) will host a conference call for analysts and institutional investors at 9:00 a.m. CET to discuss second quarter & half year results. 
For the audio webcast 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
Signify (Euronext: LIGHT) is the world leader in lighting for professionals and consumers and lighting for the Internet of Things. Our Philips products, Interact connected lighting systems and data-enabled services, deliver business value and transform life in homes, buildings and public spaces. With 2017 sales of EUR 7.0 billion, we currently employ approximately 30,000 employees and have a presence in over 70 countries. We unlock the extraordinary potential of light for brighter lives and a better world. News from Signify is located at the Newsroom, Twitter and LinkedIn. Information for investors can be found on the Investor Relations page.

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, impact of 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 to international tax laws. Please see "Risk Factors and Risk Management" in Chapter 12 of the Annual Report 2017 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 2017.


Looking ahead to the second half of 2018, the Group is primarily concerned about the challenging economic conditions, currency headwinds and political uncertainties 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 2017.

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 2017 and semi-annual report 2018.

Changes to financial reporting following organizational changes to further align the organizational structure with the strategy
As the market trend of both professionals and consumers switching from buying lamps and luminaires to integrated LED luminaires is accelerating, the company has decided to modify the current portfolios of its business groups. As of January 1, 2018, Signify has implemented the following changes to the following portfolios:

• Consumer and professional trade downlights, the recessed spots portfolio and the LED Light strips moved from Home and Professional to LED;
• Consumer LED functional ceiling products moved from Home to LED;
• LED battens moved from Home to Professional; and
• Consumer and professional trade LED panels moved from Home and LED to Professional.
• Next to this, the financial performance of the Ventures activities is reported in Other instead of in Professional and inHome, as these activities are managed outside of the aforementioned business groups. In addition, the switches businesswithin Lamps has been moved to LED.

Therefore, with effect from the first quarter of 2018, Signify reports and discusses its financial performance based on the above portfolio changes. In March 2018, the company provided an update to show the effect of changes to the business portfolio as well as changes to the allocation methods of centrally-managed costs and expenses and threshold for other incidental items as adjusting items when presenting certain non-IFRS measures such as Adjusted EBITA.
In addition, the cash flow presentation has been amended to better correspond to the balance sheet and to further improve transparency on cash flow movements. As of the first quarter of 2018, Signify provides cash flow statements per quarter.

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

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Source: Signify via Globenewswire