Signify Nv Ord

Hello, welcome to the Signify fourth quarter and full year 2025 results conference call, hosted by Oz Tempelman, CEO, Selko Kosanovic, CFO, and Thelka Gerdes, Head of Ambassador 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 pound key five on your telephone keypad. Please note that you're limited to one question and a follow-up per round. I would now like to give the floor to Jelka Gerdes. Ms. Gerdes, please go ahead.

Good morning, everyone, and welcome to Signify's fourth quarter and full year 2025 earnings call. With me today are our CEO, As Tempelman, and our CFO, Zeljko Kosanovic. During this call, us will discuss our full year 2025 results and business highlights. Zeljko will then walk you through the financial performance in more detail. Us will then come back to discuss our fiscal year 2026 outlook and closing remarks. After the prepared remarks, we will be happy to take your questions. Our press release and presentation were published at 7 o'clock this morning on the Investor Relations website. A transcript of this call will be made available shortly after. And with that, I'd like to hand over to us.

Thank you, Delke, and good morning, everyone. And thanks for joining us today. It's actually great to connect with all of you again in my second earnings call at Signify. Now, five months in the role, I've learned a lot, and I feel... that I've got a solid handle on the business. You know, of course, really supported by great collaboration with the management team here at Signify. I gained much more clarity about the business, the market dynamics we face, and also the actions we need to take. And I want to express that I'm confident about the future and the strategy we're putting in place. And I'll come back to that a bit later in the call. But let me first comment on the Full year results and the full year performance 2025. We delivered what I qualify as a mixed performance as we are navigating a very challenging market environment. It's marked by reduced demands, price pressures in the select markets, weakness in trade channels, and of course, the ripple effect of trade tariffs. And despite all these headwinds, I mean, if you look through it, our business has shown good resilience. In professional, we delivered growth in the US in the fourth quarter, while Europe remains under pressure, and that's particularly true in the trade channel. And we see in countries where we have large positions like Germany, France, and the Netherlands, that demand is sluggish. Our consumer business grew in 2025, with momentum remaining strong across all the regions, with the exception of China. We saw continuous growth, strong growth in connected and specialty lighting, and that part now represents about 36% of our sales. And this strength of that connected and specialty lighting was really visible across both the consumer and the professional businesses. The OEM manufacturing business, on the other hand, continued to experience reduced demand and persistent price pressures. I'm pleased that we hold a solid growth margin above 40%, and that was really supported by discipline on the cost side as well as price management across both the professional and the consumer business. For the full year, we delivered an adjusted EBITDA margin of 8.9% and strong free cash flow of 7.6% of sales. And this strong free cash flow is really driven by working capital discipline, and that really underscores our resilience when it comes to cash generation. Now, diving a bit into the respective businesses, let me start with the professional business. Comparable sales decreased by 1.4%. As growth in the U.S., the U.S. was offset by the weakness in Europe. And then, like I mentioned, particularly in the trades channel. The adjusted EBITDA margin was decreased by 40 bps to 8.9%, mainly reflecting price and volume pressure in the European business. Our teams did a great job at mitigating the direct effects of tariffs, which resulted into a kind of neutral impact on sales and profitability, and it's something we should be really proud of. That was achieved through effective supply chain and price management. While the direct effect of tariffs was contained, of course, we clearly felt the ripple effect in other parts of the world, particularly through tourism. production overcapacities in China, and the resulting price pressure in parts of our business. Now moving on to consumer, comparable sales increased by 1.4%, and this was driven by strong connected sales throughout the year. The adjusted margin decreased by 50 bps to 10.6%, mainly due to higher commercial investments, which we will discuss in more detail later on. Moving to the OEM business, comparable sales were down 16.5%, and we mentioned that before as a result of weak demand and intense price pressure, and that we also there felt the structural overcapacity in the markets. Throughout the year, the business was also impacted by lower orders, and we mentioned that before, of two specific major customers of the OEM business. Adjusted EBITDA decreased 4.8% to 4.8%, reflecting the impact of lower volumes and continued growth margin pressure. And then finally, wrapping up with the conventional business, comparable sales decreased by 23.1%, reflecting the structural decline of this business, and the adjusted EBITDA margin decreased with 180 bps to 16.1%. So all in all, mixed results, difficult quarter, but where we showed strong cash generation and good resilience. Now, let me move to showing you a few of the examples of what is actually our business then. works out in real life. With the professional business in Europe, while the business remains under pressure, our connected business in the region continues to grow. And we had a recent project we completed in Madrid, and this is a great example of this momentum. showcasing how connected outdoor lighting can completely transform what is a truly iconic landmark. And we carried out a full architectural lighting renewal of a Teatro Real, some of you might know it, reworking both the exterior as well as the ornamental lighting. And the goal was to enhance the theater's presence in the city at night, while fully respecting and preserving, of course, its nice historic character. And beyond aesthetics, the impact on energy efficiency is significant. We achieved over 40% savings, and that is kind of equaling two tons of CO2 avoidance every year. And this installation is fully connected through our Interact platform, and this allows cloud-based control monitoring and enables dynamic lighting scenes that can be adapted to different cultural events. So, really great project that supports Teatros Real's net zero ambitious, while combining sustainability, digital innovation, and a richer visitor experience. So, really cool example. And then on the consumer side, I wanted to highlight the You business. We'll focus on Philips Hue on this slide. Following the very successful new product launches in September, we delivered a very strong commercial execution in the fourth quarter, building on the momentum we have seen throughout the year. Great momentum on You. During Black Friday and Cyber Monday, we exceeded expectations in both North America and Europe. And that also underscores the strength of the brands and our execution during these key commercial moments. And given our focused investments in use, social media presence, we saw a significant increase in the brand engagement in the fourth quarter as well, with social views, media views rising more than 100-fold on a year-on-year basis. So we're really stepping up online. And we further invested in the uApp. As a result, in-app sales also grew by more than 50%, reinforcing the strength of that connected system. And it also is a clear signal of its long-term value potential. And then finally on You, we launched the You Essential range. That was a key step in making You more accessible to new customers by offering them a lower price entry point into the ecosystem. And this also successfully drove new customer acquisition. So once customers enter the You ecosystem, they typically continue to add products. So it's a real strong platform play. Moving on to our Brighter Lives and Better Worlds program. That is now completed, the program ran until the end of 25, and we will be introducing an updated sustainability program later in this quarter. And that is really designed to further align our sustainability and business with our strategic business objectives and long-term value creation. So, actually, good for sustainability and good for business. In the final quarter of the 2025 program, we delivered following results. First on the climate actions, we surpassed our targets, reducing greenhouse gas emissions across the entire value chain with 40% versus the 2019 baseline. And, you know, this is all SBTI-driven targets. Minus 40% was actually a target that was set by the Paris Agreement by 2031. So we got there much, much faster, and it's something we are very proud of. Secondly, on circularity, circular revenues reached 37% of sales, well ahead of the target of 32. And then thirdly, we have our brighter lives revenues, so that relates to our product portfolio that benefits beyond lighting society. And you have to think about food availability, safety, security, health, and well-being. And the brighter life revenues reached 34% of sales, again, exceeding our targets. We have one red on the slides that is on diversity and inclusion, the percentage of women in leadership It stood at 27, which means we did not meet the target of 34%. And this is an area where progress has been slower. I want to highlight that we remain fully committed to improving the representation through focused diversity hiring, retention, but also attrition. We try to reduce attrition on the diversity side. With that, let me hand it to Zelko.