Signify Reports Full Year Earnings

Fourth quarter 2021¹

• Sales of EUR 2,008 million; comparable sales growth of 4.5%
• Order book increase of 67% in Q4 21 vs. Q4 20
• Adj. EBITA margin of 13.2% (Q4 20: 13.4%)
• Net income of EUR 170 million (Q4 20: EUR 137 million)
• Free cash flow of EUR 257 million (Q4 20: EUR 332 million)
• Repayment of EUR 350 million of debt, as committed

• Signify’s installed base of connected light points increased from 77 million at YE 20 to 96 million at YE 21
• Sales of EUR 6,860 million; comparable sales growth of 3.8%
• LED-based sales represented 83% of total sales (FY 20: 80%)
• Adj. EBITA margin of 11.6% (FY 20: 10.7%)
• Net income of EUR 407 million (FY 20: EUR 335 million)
• Free cash flow of EUR 614 million, 8.9% of sales (FY 20: EUR 817 million)
• Net debt/EBITDA ratio of 1.4x (YE 20: 1.7x)

• Proposal to pay a cash dividend of EUR 1.45 per share over 2021

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company’s fourth quarter and full-year 2021 results.

“The strong demand for connected lighting and our growth platforms, paired with the delivery of delayed orders, enabled us to achieve a comparable sales growth of 4.5% in the fourth quarter. Our teams’ relentless focus on the execution of our strategy enabled us to deliver against our objectives for the year. This, in an external environment that was possibly even more challenging than in 2020. Despite the significant cost increases of raw materials, components, and logistics, we expanded our operational profit margin for the eighth consecutive year, with an improvement of 90 basis points. This was driven by the strong performance of our two digital divisions, which combined now account for more than 80% of our sales, profit and cash flow. Finally, during the year we continuously made significant progress on our journey to double our positive impact on the environment and society,” said CEO Eric Rondolat.

Brighter Lives, Better World 2025

In the fourth quarter, Signify completed the first year of its Brighter Lives, Better World 2025 program, making substantial progress towards doubling its positive impact on the environment and society:

• Double the pace of the Paris agreement:
  Cumulative carbon reduction over the value chain was 60 million tonnes, and is ahead of track. All of Signify’s divisions had CO₂ emission reductions. The main driver remains the accelerated shift to energy efficient and connected LED lighting in 2021, which decreases the carbon emissions in the use phase.

• Double our Circular revenues to 32%:
  Circular revenues increased to 25%, compared with the 2019 baseline of 16%. Signify is on track to achieve the 2025 target of 32%. This positive trend is driven by the further expansion of serviceable professional luminaires, and the continuous, stable contribution of consumer luminaires and circular components.

• Double our Brighter lives revenues to 32%:
  Brighter lives revenues were 27%, with a strong contribution from the consumer well-being portfolio. With this performance, Signify is making good progress towards the 2025 target of 32%.

• Double the percentage of women in leadership to 34%:
  The percentage of women in leadership positions was 25%, stable when compared with last quarter. This performance is slightly behind the 2021 intermediary step aimed at reaching the 2025 target of 34%. In Q4, Signify launched the Powering Inclusion Series, which increases the awareness of its leaders and people managers on how to foster inclusion.

As Signify continues to proactively navigate through the gradually improving component and logistics environment, it provides the following outlook for 2022:

• Comparable sales growth in the range of 3-6%
• Continued Adjusted EBITA margin improvement of up to 50 bps
• Free cash flow in excess of 8% of sales

Capital allocation

Signify proposes a cash dividend of EUR 1.45 per share for 2021, in line with its plan to pay an increasing annual cash dividend per share year on year. The dividend proposal will be subject to approval at the Annual General Meeting of Shareholders (AGM) to be held on May 17, 2022. Further details will be provided in the agenda for the AGM.

The company expects to progress towards a leverage ratio of reported net debt/EBITDA of 1x by the end of 2022. This now includes the cash outflow from the intended Fluence acquisition, and the 2022 cash inflow from its operations and the continued rationalization of the company’s real estate portfolio.

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

Financial review

Fourth quarter

Total sales increased to EUR 2,008 million with a comparable sales growth of 4.5%, driven in particular by the professional segment, which benefited from strong demand and the partial fulfillment of delayed orders. The two digital divisions increased their pace of recovery to the pre-pandemic sales levels of 2019. During the quarter, Signify continued to face logistics delays across its supply chain, caused by container shortages and congested ports. At the same time, component shortages continued to ease, thereby allowing the company to partially fulfill delayed orders. By the end of the quarter, the order book had increased by 67% versus last year.

The adjusted gross margin decreased by 70 bps to 39.5%, on a high comparison base of 2020. In Q4, price increases and positive mix effect fully offset the effect of higher COGS. Adjusted indirect costs as a percentage of sales decreased by 60 bps to 27.8%, driven by operating leverage, structural cost savings and one-off effects in the previous year, which included provisions for the reimbursement of solidarity contributions to employees.

Adjusted EBITA increased to EUR 265 million. Adjusted EBITA margin decreased by 20 bps to 13.2%, mainly due to higher COGS, partly offset by pricing, positive sales mix and operating leverage.

Total sales increased by 5.5% to EUR 6,860 million. Comparable sales growth of 3.8% was driven by the two digital divisions, which benefited from strong consumer and professional demand for connected products and for our growth platforms. LED-based sales were 83% of total sales (2020: 80%).

The adjusted gross margin improved by 10 bps to 39.4%, as higher input and logistics costs were more than compensated by price increases, positive sales mix and the carryover of bill of materials savings in the first half of the year. Adjusted indirect costs as a percentage of sales decreased by 90 bps to 29.6%, as a result of operating leverage and structural cost savings.

Adjusted EBITA increased by 14.4% to EUR 795 million. Digital Solutions and Digital Products contributed 82% of Signify’s Adjusted EBITA excluding ‘Other’ (2020: 79%). The Adjusted EBITA margin increased by 90 bps to 11.6%, as operating leverage, pricing and mix more than compensated higher input costs for raw materials, components and logistics, and a negative currency effect.