Signify Nv Ord

Hello, welcome to the Signify second quarter and half year 2025 results conference call, hosted by Telco Kosanovic, CFO and interim CEO, and Telco Gerdes, head of investor relations. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. If you wish to ask a question, please press key pound five on your telephone keypad. Please note that you are limited to one question and a follow-up per round. I would now like to give the floor to Elke Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's earnings call for the second quarter of 2025. With me today is Veljko Kosanovic, Signify's CFO and interim CEO. During this call, Zelko will take you through the second quarter highlights. After that, he will present the company's financial performance. And finally, he will discuss the outlook for the remainder of the year. And 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 earnings call will be made available as soon as possible. And with that, I will now hand over to Zelko.

Thank you, Zelko, good morning everyone and thank you for joining us today. Let's start with some of the highlights for the second quarter of 2025 on slide 4. We increased the installed bays of connected lighting points to 156 million at the end of Q2 2025 from 236 million last year. Nominal sales decreased by 4.4% to €1,480,000,000, largely driven by a negative FX impact of 3%. The comparable sales decline of 1.4% reflects a top-line growth of 0.8%, excluding the conventional business. The momentum in our business continued through the second quarter, with comparable sales growth in both the professional and the consumer business. Connected and specialty lighting now represent over a third of our total sales. Connected and specialty lighting grew in all the regions, in all businesses, showing the importance and the impact of our strategy. Adjusted EBITDA decreased by 8 million euros to 110 million euros. The adjusted EBITDA margin decreased by 10 basis points to 7.8%. as the gross margin expansion was offset by a higher proportion of indirect costs. The net income decreased to 57 million euros, primarily due to lower operating income and higher adjusted items. Finally, the free cash flow generation was 36 million euros this quarter. I will now move to our four businesses. Starting with the professional business on slide five. The business returned to growth in the second quarter, led by a strong performance of our US business. The weakness we have seen in Europe over the past quarters is starting to weigh a lot less on our overall performance. While the trade channel remains weak, the repositioning of our business to capture opportunities in faster growing areas has allowed us to grow in connected and specialty lighting, in all geographies and all segments across Europe. The nominal sales decreased by 2.9% to 931 million euros, including a negative currency effect of 3.1%. Adjusted EBITDA decreased by 9 million euros to 69 million euros. The gross margin remained robust as a result of effect of price and cost management. The adjusted EBITDA margin decreased by 70 basis points to 7.4% as the fixed cost reductions were partly reinvested into mainly marketing and selling expenses to fuel our growth momentum. Moving on to the consumer business, on slide 6, nominal sales decreased by 0.5% to 296 million euros, including a negative currency effect of 3.1%. Comparable sales grew by 2.6%, reflecting the continued momentum in the consumer business in most markets. Signify continued to see strong performance of its connected home products. The adjusted EBITDA margin improved by 30 basis points to 7.4%, largely driven by volume growth. Continuing now with the OEM business, on slide 7, nominal sales decreased by 14.5% through €90 million, including a negative currency effect of 2.9%. Comparable sales declined by 11.6%, as we expected, as we continue to face intense price pressure for the non-connected components. In addition, the effect of lower orders from two major customers, as highlighted in the previous quarter, continue to weigh on the business top line. Connected components, on the other hand, continue to grow in line with our strategy. The adjusted EBITDA margin decreased by 240 basis points to 8.5% as the gross margin was impacted by negative pricing, however, sequentially improving versus the last quarter. Given the pressure on the top line, the margin remained resilient, supported by action we had put in place to protect the bottom line. For the second half of the year, we expect the OEM business to perform similarly to the first half, with ongoing price pressure and the continued impact from the two key customers, as already observed in Q1 and in Q2. Due to a shift in the timing of order fulfillment compared to last year, With deliveries moving from September to October, we anticipate a softer Q3 followed by a stronger comparable sales growth in Q4. This shift will alter the typical seasonality pattern and influence the profitability split between the two quarters. For the full year, we are continuing to expect an adjusted IMITA margin of mid to high single digits. And finally, the conventional business on slide 8. Nominal sales decreased by 28.9% to €81 million, including a negative currency effect of 2.1%. Comparable sales were down 26.8%, in line with our expectations, reflecting the structural decline of the business. the adjusted EBITDA margin improved by 290 basis points to 18.6%, mainly driven by gross margin expansion on the back of discipline and price and cost management. On the next slide, slide 9, I would like to discuss a couple of business highlights from Q2. Starting off with the latest corporate nights ranking, We ranked 6th overall and 1st in the Netherlands in Corporate 9's Europe's 50 Most Sustainable Corporations ranking. Our high placement reflects our strong performance across a number of sustainability indicators, such as sustainable revenue and investment, resource management and responsible innovation. Our professional business has helped the city of Gothenburg in Sweden to become safer, smarter and more sustainable. In total, we installed 27,000 connected light points since 2018 that provide smart functionality such as dynamic control, fault detection and enhanced safety through sensor-based lighting. The replacement of all lighting infrastructure has also led to energy savings of 80% reduce light pollution and lower operating costs, which supports further rollout of connected lighting across the city. The professional business also equips the Samsung Nat Airport in Ho Chi Minh City, in Vietnam, with smart lighting. The equipment of the new T3 domestic terminal of Ho Chi Minh City Airport is part of a number of projects we are delivering for the city. The smart lighting system enhances safety, comfort, and architectural aesthetics for up to 20 million passengers annually. The lighting system features motion sensors and glare-free illumination. This is in alignment with Vietnam's net-zero ambition and signifies sustainability commitment. Moving on to the consumer business, we expanded the Philips Hue ecosystem with the HuePlay wall washer. which uses our exclusive color cast technology to deliver vibrant wide angle gradients and lighting effects. When being synced to games, movies or music, the Playwall washer reacts in real time with rich full color gradients and immersive effects. When not syncing, it also provides premium ambient light. Next, I would like to discuss our sustainability performance on slide 10. During the second quarter, we continue to track ahead of schedule to achieve our 2025 target to reduce greenhouse gas emissions across our entire value chain by 40% against the 2019 baseline to double the pace required by the Paris Agreement. Circular revenues increased to 37% up another %4.6q1 and surpassing the 2025 target of 32%. The main contribution was from serviceable luminaires in the professional business in all regions. Bratolines revenues remained at 33% and beyond the 2025 target of 32%. This includes strong contribution from tunable professional products and special lighting that support health and well-being. The percentage of women in leadership positions remained at 27% this quarter, which is clearly not aligned with our 2025 ambitions. We continue our actions to increase representation through focused hiring practices for diversity across all levels and through retention and engagement action to reduce attrition. Let me now dive into the financial highlights on slide 12, where we are showing the adjusted EBITDA breach for Total Signified. The adjusted EBITDA margin decreased by 10 basis points to 7.8% due to the following developments. The negative volume effect was 30 basis points, largely attributable to the decline of our conventional business, as we saw positive volume growth in the professional and consumer businesses. The combined effect of price and mix was a negative 180 basis points. The effect of price erosion continues to stabilize or improve in most of our businesses. This effect is partially compensated by the decrease in our bill of material and other COGS savings, which had a positive effect of 140 basis points. I would like to highlight that the growth margin in this quarter stood at a solid 4.4%, up 10 basis points from the high base of last year, reflecting our team's disciplined price and cost management. Indirect costs improved by 50 basis points on adjusted EBITDA margin level, reflecting the capture of savings from our cost reduction program. As mentioned earlier, we have chosen to step up our investments, particularly into selling and marketing expenses, to support the growth momentum. Finery currency had a negative effect of only 10 basis points as we limited the effect of FX movements on our bottom line. On slide 13, I'd like to zoom in on working capital performance during the quarter. Compared to the end of June 2024, working capital reduced by 47 million euros or by 40 basis points from 7.9% to 7.5% of sales. Inventories decreased by 77 million euros, receivables reduced by 67 million euros. Payables were 108 million euros lower. Finally, other working capital items reduced by 12 million euros. Let's now continue with the outlook on slide 15. Based on our performance in the first half of the year and the growing momentum in our business, we are on track to achieve our guidance of low single-digit comparable sales roles excluding the conventional business for the full year. We are adding a range of 9.6 to 9.9% to our EBITDA guidance, underpinned by continued top-line momentum and the disciplined execution of our first plans. This reflects a somewhat different seasonality pattern this year compared to last year, as this year will be more back-end loaded with the hedger Q4. And finally, we are continuing to expect a free cash flow generation in the range of 7% to 8% of sales, driven by strong cash conversions, particularly in the fourth quarter. Our share buyback program began in February, and we already completed the share repurchase of €65 million of shares until the end of June. And with that, I will now hand back to the operator for the Q&A.