A Look at Signify’s Annual Report 2021: Strong Performance Despite the Component and Logistics Crisis

 

A Look at Signify’s Annual Report 2021 (published Feb 23, 2022):  Challenged since 2019 to show sales growth, Signify closed 2021 with a return to sales growth, improved profitability, and strong sustainability progress – all despite the component and logistics crisis

A Look at Signify’s Annual Report 2021
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While Annual Reports fulfill a corporate reporting requirement, keep in mind that any Annual Report serves many additional functions as a marketing and promotional tool with target audiences that include (current and potential) investors, employees, customers, suppliers and communities.  Signify’s 2021 Annual Report tackles all of these functions.

Faced in 2021 with the challenges of the ongoing pandemic, significant global supply chain issues, and a key integration effort following the acquisition of Cooper Lighting in 2020, Signify reported strong results.  CEO Eric Rondolat confirms in the 2021 Annual Report that the teams executed on the strategic focus to manage through the health and supply chain challenges while transforming the business around Signify’s “5 Frontiers” (customer-centric, differentiated offers, sustainability, digitialize/transform the future, be a great place to work).

Signify’s results for 2021 included global revenue of EUR 6.9B, comparable sales growth of +3.8% over 2020, EBITA margin improvement of 90 bps in 2021, and debt repayment that reduced Signify’s leverage to 1.4x.

Signify breaks out their global performance by Division:

  • Digital Solutions (51% of 2021 sales) includes all professional channel lighting solutions (commercial, industrial, agriculture, solar, disinfection lighting and 3D printing)
  • Digital Products (36% 0f 2021 sales) – includes LED lamps (professional and consumer channels), LED components – drivers and modules (OEM channel), connected lighting systems and luminaires for home systems (consumer channel)
  • Conventional Products (13% of 2021 sales) – non-LED based technologies (professional, consumer and OEM channels)

In terms of comparable sales growth in 2021 versus 2020:  Digital Solutions grew by +3.4% with EUR 3.524B in revenue; Digital Products grew by +8.8% with EUR 2.45B in revenue, and Conventional Products declined by -6.9% with EUR 861M in revenue. Signify reports that they continue to win market share and remain a market leader in the conventional market as it continues to decline, proactively managing its manufacturing footprint and supporting the company’s transition to connected LED products.  LED-based sales in 2021 represented 83% of global sales versus 80% in 2020.

During the Q4/Full Year 2021 earnings call, CEO Rondolat indicated that the consumer-based business has fully recovered in revenue at the end of 2021 to where it was at the end of 2019. However, the Digital Solutions division was at about 89% of where revenue was at the end of 2019, indicating a “reservoir” of growth for 2022 and 2023.

Acquisitions in 2021 included a completed acquisition of UK-based Telensa Holdings Limited, a smart cities wireless monitoring and control system company, as well as an announcement to acquire Fluence, an Austin, TX-based horticultural company.  The Fluence acquisition is anticipated to close in 2022.  In the “After Balance Sheet Date” section of the Annual Report, the February 9, 2022 announcement of Signify’s agreement with Australia-based Gerard Lighting Group to acquire the Pierlite business is noted.  This acquisition is expected to close in Q2 2022 and to strengthen Signify’s position in the Australia and New Zealand markets.

In addition to reporting on sales by division, Signify also measures two strategic areas for growth that pull solutions and products from both the Digital Solutions and Digital Product Divisions:  1) Connected Lighting (both professional, and home systems – Hue and WIZ Connected) and 2) Growth Platforms (horticultural).  For 2021, connected lighting sales made up 20% of Signify’s total sales (+21% increase over 2020, and driven by both consumer and professional demand).  The growth platforms were up 19% in 2021 over 2020 and represented approximately 5% of total sales.  Most of Signify’s horticulture sales have been in European markets to date;  Signify expects their acquisition of Fluence will grow their US horticultural sales.

Sales by Geography is also detailed in the Annual Report, providing insight into the increased share of global sales delivered by the Americas now that Cooper Lighting is included.  Since the 2020 acquisition of Cooper Lighting, Americas has moved into the number one slot by “geographic cluster”, with Europe totaling 31% of global Signify 2021 sales, and the Americas at 38%.

Signify’s 2021 Annual Report includes a section on Risk (“12 Risk factors and risk management”) with an opening note on their recognition that taking risks is inherent to entrepreneurial behavior and an overview of their structured risk management process.  Each of the 12 risks identified is named with a description along with the mitigation plan.  The final risk of the 12 is “Concentration risk”, related to the acquisition of US-based Cooper Lighting in 2020 and the resulting exposure to and importance of developments in the North American market.  Mitigation action notes include Signify’s recognition of the importance of the US for annual strategic planning, and resource allocation in line with the size of the business and growth potential.

Restructuring provisions described in Signify’s 2021 Annual Report relate primarily to restructuring of the central organization and programs in Division Conventional Products, with impact mainly in Belgium and the Netherlands.  Signify reports globally 33,056 employees (excluding third party workers) in 2021, up +4% from 2020.  However, as a subset of that number, Netherlands employees(excluding third party workers) in 2021 was reported at 2,339, down by -7% (173 employees) from the prior year.

Signify’s “Brighter Lives, Better World 2025” program, laid out in detail within the 2021 Annual Report, aims to address global business challenges while contributing to six of the United Nations (UN) Sustainable Development Goals (SDGs).  Since 2017 Signify has communicated its impact in monetary terms.  Targeting these six UN SDGs allowed for the company to create a methodology for calculating the societal impact (details available at link below in Signify’s Sustainability downloads webpage).  Signify reported that all six of the sustainability commitments were on track, including some accelerated actions to combat climate change.

The 2021 Annual Report describes diversity initiatives to date that are focused on gender and generation, with “space for markets, divisions and functions to locally implement important and relevant initiatives.” The narrative detail on Diversity, equity & inclusion (section 16.3.2) also notes: “As a company, we are naturally diverse operating in 74 countries with more than 90 nationalities represented in our workforce.  Globally, we recognize that we need a more diverse workforce, especially in management and executive positions.”  CEO Rondolat’s opening letter in the 2021 Annual Report notes that Signify will publish their first annual Diversity, equity and inclusion (DE&I) report in 2022.  Presumably that DE&I report will expand measurements beyond gender and age.

Signify’s 2021 Annual Report shows a global company meeting the many challenges in the lighting industry head-on and driving the environmental, social and governance initiatives in a substantive approach.  The outlook given for 2022 is comparable sales growth globally in the range of +3 to +6% and continued margin improvement.

Dig Deeper:

Signify 2021 Annual Report:

https://www.signify.com/static/2021/signify-annual-report-2021.pdf

  • Performance Highlights, see page 5 of 186
  • Signify’s 5 Strategic Frontiers, see page 15 of 186
  • Sustainability – 6 UN SDGs Target Reporting, see page 22 of 186

Signify Sustainability Downloads Webpage: https://www.signify.com/global/sustainability/downloads

Signify Q4 2021 Analyst Presentation:  https://www.signify.com/static/quarterlyresults/2021/q4_2021/signify-fourth-quarter-and-full-year-results-2021-presentation.pdf

Signify Press Release Q4 2021:  https://www.signify.com/static/quarterlyresults/2021/q4_2021/signify-fourth-quarter-and-full-year-results-2021-report.pdf