Signify Nv Ord

Hello, and welcome to the Signify fourth quarter and full year 2024 results. 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 will be limited to one question plus one follow-up. Today, I'm pleased to present Eric Rodolat, CEO, Jenko Kusanovic, CFO, and Terke Geddes, Head of Investor Relations. Please go ahead with your meeting.

Good morning, everyone, and welcome to Signify's earnings call for the fourth quarter and for the year 2024. With me today are Eric Gondola, CEO of Signify, and Zeljko Kozanovic, CFO. During this call, we will start with Eric's review of Signify's 2024 operational and business performance. Zeljko will then review the company's financial performance for the quarter. And after that, Eric will return with an update on capital allocation and the outlook for 2025. 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 from our investor relations website. The transcript of this conference call will be made available as soon as possible. And with that, I now hand over to Eric.

Thank you, Telpio. Good morning, everyone, and thank you for joining us today. Let me start with a few operational highlights on page four. So 2024 was an important year of transition for Signify. We implemented the new organizational structure in April consisting of four verticalized businesses with full profit and loss responsibility. So you know that each of these four businesses is fully responsible for its end-to-end processes, including strategy, quality, offer development, manufacturing, and sales and marketing. The new structure allows us to capture growth opportunities in our markets faster and with more customer centricity. We also launched a 200 million euro cost reduction program, delivering 131 million of savings for the year, and this is totally in line with our commitments to deliver two-thirds of the cost reduction in the first year. We also successfully managed the accelerated decline of the conventional business by restructuring the business ahead of time while maintaining its profitability. We were also able to offset the declining profit contribution of the business with a strong underlying performance of our professional consumer and OEM businesses. In June, we launched our climate transition plan to reduce greenhouse gas emissions by 90% across our entire value chain and reach a net zero by 2040. We also repaid 440 million euros of debt, which not only strengthens our balance sheet, but also reduces our interest charges for the coming years. Maybe more on the commercial side, we entered into a partnership with Mercedes. AMG Petronas Formula One team to drive responsible innovation together and also enhance the visibility of the Signify brand. As we look ahead, we are confident that these strategic initiatives will provide us with the agility and focus needed to capitalize on the opportunities within our markets. Let's move to the next slide. So despite headwinds in some of our markets, we delivered a robust profitability and free cash flow generation. We increased the installed base of connected light points to 144 million at year-round 2024, a strong increase from 124 million at the end of last year. Sorry, at the end of 2023. LEDD sales represented 93% of total sales, up from 85% last year. Comparable sales growth was minus 6.6%. for the year driven by the headwinds in China and in the professional business in Europe, as well as a drag of 240 basis points from the conventional business. Throughout the year, we saw a progressively improving top line as conditions in our markets improved, led by the consumer business, which returned to growth. We continue to see growth in our connected and specialty lighting businesses, driven by underlying demand for energy efficient and innovative solutions. All in all, our adjusted EBITDA is at 9.9% for the full year and includes a drag effect of 40 basis points from the slowing contribution of the conventional business, highlighting our ability to navigate challenging market conditions. Our professional consumer and OEM businesses combined achieved an adjusted EBITDA margin expansion of 30 basis points. In addition to this, we delivered 131 million euros of savings through the successful implementation of the cost reduction program. Net income increased from 215 million to 334 million euros, driven by lower restructuring costs and financial expenses. Finally, we achieved a strong free cash flow of 7.1% of sales, which includes a cash out related to the restructuring program and a reduction of our US pension liabilities. Let's move now to slide six. So looking at the free cash flow generation, as you can see on the slide, Conventional now represents only 8% at the end of 2024. As a reminder, in 2023, and still under the old structure, the cash flow generation of that business was still of 99 million euros. The sales contribution of the professional consumer and OEM business increased from 91% in 2023 to 93% in 2024. In terms of the EBIT A, the contribution of these three businesses increased from 82% to 88%, driven by their solid performance and the sharp reduction of the conventional business EBIT A, a contribution of almost 50 million euros in 2024. On slide seven, we illustrate further the drag effect of conventional and signified top line and bottom line. The decline of conventional had negative impact of 240 basis points on signifies reported comparable sales growth, excluding conventional. The comparable sales growth would have been of 4.2% for the full year. On adjusted EBITDA margin basis, the lower contribution of conventional had an impact of 40 basis points, partially compensated by an expansion of 30 basis points from the other businesses. Turning to slide eight. I would like to focus on the performance of our three so-called LED businesses, professional, consumer, and OEM. Let's start with the professional business. We have experienced a challenging market conditions, I would say, in Europe and China, resulting in a decrease of comparable sales growth for the full year of 5.8%. We are pleased that our connected sales have continued to progress. As a result of the top line decline, our adjusted EBITDA margin has been impacted by lower operating leverage, offsetting the benefits from the restructuring program. Moving on to the consumer business, we have experienced a decrease in comparable sales growth of 1.2% for the full year, mainly attributable to a sharp sales decline in China. excluding which our business would have grown by 1.9%. On a positive note, we achieved an adjusted margin expansion of 220 basis points, driven by recovery in most markets and benefits from our cost reduction program. Lastly, in the OEM business, we saw a stabilization of our comparable sales growth following the normalization of inventory levels, leading to a decline of 2% for the year. The benefits from our cost reduction program contribute to the adjusted EBIT margin expansion of 170 basis points to 11.1%. Let's move to slide nine. I would like now to discuss the cost reduction program, which was fully rolled out in 2024. Our adjusted indirect costs reduced nominally from 2.075 to 1.965 billion euros, a net reduction of 110 million. With that, we generated 131 million euros of saving, mostly related to our restructuring program, which was aimed at a reduction of our workforce in head office and central functions. This was partly offset by cost inflation, such as labor inflation and higher transportation costs, investments in some of our markets and currency effects representing a cost increase of 21 million euros. I would like to highlight that the incremental cash out related to the restructuring program and pension de-risking was of 105 million euros, which is substantially lower than the previously communicated amount of 150 million. This was achieved by managing the cash impact in a very disciplined way. Next, I would like to discuss our sustainability performance on slide 10. So, we completed the fourth year of our Brighter Lives Better World 2025 sustainability program and made continued progress towards achieving our goal of doubling our positive impact on the environment and society by the end of 2025. So, Signify is on track to achieve the target of reducing emissions across the entire value chain at the double of the phase required by the Paris Agreement. This is driven by Signify's leadership in energy efficient and connected LED lighting solutions, which significantly reduce emission and very specifically during the use phase. Our circular revenues were at 35%, well ahead of the 2025 target of 32%. Bratislava's revenue increased to 33%, also ahead of track of the 2025 target. This includes a strong contribution from professional luminaires that support the well-being of wildlife. The percentage of women in leadership positions dropped to 28% off track versus our 2025 target. I would now like to head over to Zeliko to discuss our Q4 financial performance.