Signify Nv Ord

Hello and welcome to the Signify Third Quarter Results 2023. 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 am pleased to present Eric Rondelat, CEO, Javier Van Hengelen, CFO, Telka Gerdes, Head of IR. Please go ahead with your meetings.

Good morning, ladies and gentlemen, and welcome to Signify's third quarter 2023 earnings call. With me today are Eric Gondola, CEO of Signify, and Javier van Engelen, CFO. During this call, Eric will first take you through the highlights of the third quarter, after which Javier will present Signify's financial performance. Eric will then come back for the outlook and closing remarks. After that, we will 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 on 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, Talke. Good morning and welcome, everyone. Thank you for joining us today. Let's start with some of the highlights for the third quarter of 2023 on slide four. So we have progressed on three of our four Brighter Lives Better World 2025 commitments, already reaching our circular revenue target of 32% this quarter. Our top line was impacted by continued softness in our markets, particularly consumer-connected OEM and China. Despite pressure on the top line, we were able to expand our adjusted EBITDA margin by 30 basis points year-on-year. This expansion was driven by continued gross margin recovery and cost discipline. Lastly, further improvements in working capital supported our solid free cash flow generation. On the next slide, slide five, we see Signify's overall Q3 performance in more detail. Our installed base of connected light points increased from $119 million in Q2 to $121 million at the end of Q3. LED-based sales now represent 85% of our total revenues. Nominal sales in Q3 were €1.6 billion, translating into a nominal decline of 13.8%, which includes a strong negative forex impact of 6.2%. Comparable sales declined by 7.8%. The adjusted EBITDA margin improved by 30 basis points to 10.7%. This was driven by the continued improvement of our gross margin, which benefited from effective measures to reduce the cost of goods sold and indirect costs. Net income came at 83 million euros compared to 112 million in Q3 last year, mainly coming from lower operating income. Finally, free cash flow was 152 million euros compared to 135 million euros last year, mainly due to a cash inflow from working capital. Moving now on to our divisions and starting with digital solutions on slide 6. Nominal sales in Q3 were 990 million euros with comparable sales showing a decline of 4.3% against a high comparison base of plus 12% in Q3 of 2022. During the quarter, we saw strength in professional systems and services, which was more than offset by weakness in indoor professional lighting and particularly horticulture lighting. As mentioned in the previous quarter, we are currently seeing some weakness in this segment as we cycle a high compression base and as we see a lower order intake this year due to high energy costs. The adjusted EBITDA margin grew by 50 basis points to 11.7%. which is mainly attributable to gross margin recovery from lower cost of goods sold as well as cost discipline. On the next slide, slide seven, I would like to discuss a couple of business highlights of our digital solution divisions. We launched interact space analysis together with two new sensors. The environmental sensor monitors environmental conditions, including temperature, humidity, carbon dioxide levels, levels of volatile organic compounds, and atmospheric pressure. The PeopleSensor tracks occupancy patterns. Interact Space Analysis is a data-driven solution that gives building owners the vital information they need to optimize working conditions for tenants and their employees. We are currently the only lighting company in the world to offer this type of solution. We installed new lighting in the many supermarkets in the Rhône, Denmark. The new solution includes Nature Connect, Philips Store Flow and various 3D printed spots. We believe it can enhance revenues as the new lighting design highlights the natural colors of the products and improves the overall experience. We have also installed Philips Coraline High Bay and Philips Coraline Tempo LED lighting fixtures at Algam Eco facilities in Italy. reducing the energy consumption by around 50%. Lastly, we have partnered with Brahmaputra Volleyball League to install 120 floodlights in 20 community volleyball courts in Assam, India, to allow players to practice their sport at night. Let's now move on to digital products on slide eight. In the third quarter, the digital products division, so a comparable sales decline of 10.3%. This was mainly driven by continued weakness in the consumer-connected segment, the OEM business, and top-line weakness of our Chinese K-Lite business. The adjusted EBITDA margin was 9.9%, a decrease of 60 basis points impacted by lower fixed-cost absorption due to the volume reduction. Next, on slide 9, I would like to talk about some business highlights of digital products. We launched Philips Hue secure cameras, sensors and app features, an extension to Philips Hue connected lighting products. The cameras and sensors can be used to automate our Philips Hue light. In addition, they can deter intruders through a combination of lights and sound alarms. As an example of a commercial partnership, we have developed branded 3D printed pendant lamps in collaboration with the German football club Werder Bremen. These tailor-made lamps are largely made from recycled materials and can be ordered by fans through their webshop. We also launched ultra-efficient A-class Philips LED sun tea lamps, which replace conventional HID lamps and have energy savings of up to 55%. Moving on to slide 10 now and conventional products. In the third quarter, comparable sales declined by 21%. The adjusted EBITDA margin improved by 700 basis points to 21.2% as we recovered our gross margin, driven by a benefit from lower cost of goods sold and a positive effect on price. Excluding a small number of one-offs, the underlying adjusted EBITDA performance would be around 19.5%. which is in line with historical levels of the division that we have now recovered in the past two quarters. Next, I would like to discuss our sustainability performance on slide 11, where we have some very good news to report. We have made good progress on two of our four objectives this quarter, reaching one two years ahead of time and being very close to our target on the other one. First of all, We remain on track to reduce emissions across the entire value chain by 40%. And this is driven by Signify's leadership in energy efficient and connected lighting solutions, which significantly reduce emissions during the use phase. Circular revenues increased to 32%, which means that we hit the target we had set for 2025. The main contribution was from serviceable and upgradable luminaires with a strong performance from Cooper this quarter. We also made good progress on Brighter Lives revenues, which have increased to 31% and are therefore on track to reach the 2025 target of 32%. And this was driven by a strong performance of tunable products that support well-being. And finally, the percentage of women in leadership positions decreased to 29%, slightly off track to reach the 2025 target of 34%. Actions to increase women leadership positions continue, including focused hiring practices for diversity across all levels, and through retention and engagement actions to reduce attrition. I would now like to hand over to Javier, who will discuss our financial performance in more detail.