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

Press Release

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 2018¹

• 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.

Financial review

Changes to financial reporting
Since the first quarter of 2018, Signify reports and discusses its financial performance based on the portfolio changes that were announced in the first quarter of 2018. 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. More details can be found on page 9 in the full and original version of the press release.

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.

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 third quarter results. For the audio webcast click here.

Financial calendar
February 1, 2019                 Fourth quarter and full year results 2018
February 26, 2019               Annual report 2018
April 26, 2019                      First quarter results 2019
May 14, 2019                       Annual General Meeting of Shareholders
July 26, 2019                       Second quarter and half year results 2019
October 25, 2019                 Third quarter results 2019

For further information, please contact:

Signify Investor Relations
Robin Jansen
Tel: +31 6 1594 4569
E-mail: robin.j.jansen@signify.com

Signify Corporate Communications
Elco van Groningen
Tel: +31 6 1086 5519
E-mail: elco.van.groningen@signify.com

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 have approximately 30,000 employees and are present in over 70 countries. We unlock the extraordinary potential of light for brighter lives and a better world. We have been named Industry Leader in the Dow Jones Sustainability Index for two years in a row. News from Signify is located at the Newsroom, Twitter and LinkedIn. Information for investors can be found on the Investor Relations page.

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 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 and the semi-annual report for 2018.

Looking ahead to the fourth quarter 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 in Home, as these activities are managed outside of the aforementioned business groups. In addition, the switches business within 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.