Signify Nv Ord

Hello and welcome to the Signify First Quarter Results 2023. Today's call is being recorded. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Please note, this is limited to one question plus one follow-up. Today, I'm pleased to present Eric Rondola, CEO, Javier Van Engelen, CFO, and Telke Gerdes, Head of IR. Please go ahead with your meeting.

Good morning, everyone, and welcome to Signify's earnings call for the first quarter 2023. With me today are Eric Vandola, CEO of Signify, and Javier Van Engelen, our CFO. During this call, Eric will first take you through the first quarter highlights, after which Javier will present the company's financial performance. Eric will then come back to discuss the outlook for the remainder of the year. And after that, we'll be happy to take your questions. Our press release and presentation were published at 7 o'clock this morning. Both documents are available for download from our investor relations website. The transcript of this conference call will be made available as soon as possible. And with that, I will now hand over to Eric.

Thank you, Telco. Good morning, everyone, and thank you for joining us today. So let's start with some of the highlights for the first quarter of 2023 on slide four. Largely in line with our expectations, we continue to see persistent weakness in parts of our business in the consumer segment and in the indoor professional business. We also saw a continued slowdown in our OEM sales. At the same time, we made progress with our 2023 priorities, resulting in an improvement in our gross margin. As far as financials are concerned, comparable sales declined by 9.1%. The EBITDA margin of 8.9% was impacted. by lower fixed cost absorption as a result of the top line decline. Net income came in at 28 million euros, and free cash flow was 51 million euros. On the next slide, slide five, which signifies overall Q1 performance. So as you can see, we have increased the installed base of connected lighting points from 140 million in the previous quarter to 170 million at the end of Q1. LED-based sales were 82% of total sales, and nominal sales in Q1 were €1.7 billion, translating into a nominal decline of 6.1% and a comparable sales decline of 9.1%. Similar to Q4, the Q1 performance was mainly impacted by the continued softness in the consumer segment, a slowdown in the OEM channel, lower sales in professional indoor lighting, as well as a strong comparison base in some areas. The adjusted EBITDA margin decreased by 160 basis points to 8.9% versus 10.5% in Q1 last year. We structurally improved our gross margin, benefiting from our continued price discipline as well as measures to reduce COGS. On the other hand, the lack of top line resulted in an under-absorption of fixed costs, while we also had a temporary impact from the unwinding of our previous FX hedging policy. Net income came at 28 million euros compared to 87 million euros in Q1 last year. The year-on-year decrease is due to the lower income from operations and higher financial expenses, the latter due to the combined effect of higher interest costs and a negative non-cash fair value adjustment of our virtual power purchase agreements. Finally, free cash flow was 51 million euros in the quarter i said a considerable improvement from the negative 180 9 million q1 2022 mainly due to a lower cash outflow from working capital now let's move on to our division and we are going to start with digital solutions on slide six nominal sales in q4 were 951 million euro with comparable sales showing a decline of 8.7% against a high comparison base of 16.9% in Q1 2022. While the outdoor segment, and especially the public segment, continued to grow, we saw a more challenging indoor professional business, particularly in Europe and the US, and softness in the agricultural lighting. The adjusted EBITDA margin was 8.7%, a decrease of 100 basis points from last year, mainly due to an absorption of fixed cost and an adverse euro-neuro currency impact. This was partly upset by gross margin improvements from price increases and COGS discipline. On the next slide, slide seven, I would like to discuss a couple of business highlights of our digital solution division. So we have completed a large-scale smart city project in the Hong Kong city in China. For this project, we supplied nearly 200 bright-side smart poles, over 2,000 Philips LED streetlights, and the Interact connected lighting system. It is the biggest smart pole project in China. The bright-side smart poles integrate security cameras, environmental sensors, Wi-Fi, and other devices to collect city data and enable remote management and data analysis, all within a secure network. The combination will reduce energy consumption by about 60% and operational costs by about 50%. Next, I would like to highlight the launch of our new Philips Stock Flow retail lighting, Interact Retail hybrid lighting controls, and a range of luminaires made of waste materials. Indeed, Philips Store Flow is made of at least 68% bio-based plastic, reducing the CO2 footprint of the plastics by about 80%. Let's now move on to digital products on slide 8. In the first quarter, the digital products division saw a comparable sales decline of 10.1%. This was mainly driven by continued weakness in the consumer-connected segment and in our OEM business. The adjusted EBITDA margin was 8.3% compared to 12.8% in Q1 2022. The margin was impacted by lower fixed cost absorption and due to the volume reduction. This was partly compensated by pricing and mix. Moving on to slide 9 for the business highlights of digital products. We launched the Philips U-Sync TV app for Samsung TVs. This app synchronizes Philips U-Smart Life with Samsung-branded TVs. It allows users to experience immersive and seamless light-syncing in their homes when watching TV or playing games without having the need for a sync box. It is compatible with all TV content and video formats, including native apps. More of that. From February 24th, the restriction on hazardous substances directive banned the placing of compact fluorescent non-integrated lamps on the European market. In addition, linear fluorescent lamps T5 and T8 will be phased out as per August 24th. In order to help our customers with the switch to LED, we extended the range of energy efficient alternatives. These LED alternatives provide energy savings between 45 and 70%. Moving on to slide 10 and conventional products. Comparable sales declined by 8.5% as further pricing partially compensated the continued volume declines. The adjusted EBITDA margin recovered to 22.5%, an improvement of 650 basis points versus Q1 last year. In part, we have seen that the headwinds we saw in 2022 have turned into tailwinds namely energy and transportation costs and effects. In addition, we have taken measures to restore the margin. We implemented strong price discipline to offset cost pressures. We have taken further action to control costs, such as additional factory restructuring. Finally, the division benefited from some one-time effects in the quarter, the largest being the reversal of a legal provision. As a result, conventional products' underlying profitability is back on its historical track. Next, I would like to discuss our sustainability performance on slide 11. The cumulative carbon reduction across our value chain is on track to double the pace to the Paris Agreement. This is mainly driven by energy-efficient and connected LED lighting, which drives emission reduction in the use phase. Circular revenues were 29%, stable versus the previous quarter, yet on track to reach the 2025 target. Circular revenues continue to be driven by serviceable and circular luminaires. Broadized revenues constitute 27%, on track to reach our 2025 target of 32%. The main contribution continues to be the consumer well-being and safety and security portfolios. Women in leadership position was 29%, an increase versus the previous quarter, and on track to reach also the 2025 target. The improvement was mainly driven by the new external hires and the internal promotion of women. I would now like to hand over to Javier, who will discuss our financial performance in more details.