As the world's leading lighting company, Signify routinely practices what it preaches, installing its latest innovation in connected, human-centric, germicidal or other offerings at its own facilities. Now, it's about to also gain first-hand experience in the foreboding market possibility that commercial office use could permanently shrink.
CEO Eric Rondolat revealed to financial analysts that the company will pare back corporate headquarters in Eindhoven, a consequence of costs incurred in coping with the coronavirus pandemic and in acquiring Cooper Lighting Solutions.
“We look at our cost base today, and it's not adapted to the top line that we're generating,” Rondolat said at the company's recent online Capital Markets Day gathering. “So we are undergoing at this point in time another wave of cost reductions with one very important principle that needs to be understood. We want to go to the next stage of evolution of the company where we're going to have a very slim headquarter and a very limited cost at the central level of the company.”
A spokesperson further explained to LEDs Magazine that Signify expects by early next year to say more about how it will establish a “lean central organization.”
Rondolat acknowledged in response to a question from UBS analyst Sven Weier that restructuring costs have not come down to the target that Signify had established back in 2016 when it split from former parent Philips through an IPO (when Signify still went by the name Philips Lighting).
Thus, more measures such as headquarters cuts are coming, necessitated in part by the costs of the world health crisis, which began emerging around this time last year in China, he said.
He also pointed out that the acquisition of Cooper has left Signify facing “cash-outs” that it will have to pay Cooper stakeholders in order to establish “synergies” between the entities. Signify closed its $1.48 billion acquisition of Cooper from Eaton in March.
Cash-outs in acquisitions are typically payments that the acquiring company makes to stakeholders in the acquired company who will not join the new combination.
“So at the end of the day, yes, we have to restructure more than what we had said at the time (of the IPO), and it's because of mainly Cooper, and also because of the crisis, because we feel now that after a full year we need to re-adapt our cost base,” Rondolat said.
Earlier measures that Signify took to counter the financial impact of the global health crisis included voluntary 20% workload and pay reductions and price increases, among others.
The scale-down of headquarters echoes the grim reality that many customers of lighting companies could themselves permanently — or at least for a considerable period of time — be reducing their use of commercial offices, which will greatly impact the commercial & industrial (C&I) lighting sector. It has become common during the pandemic for companies to shift to remote working schemes, a trend that could continue.
Rondolat acknowledged to LEDs in September that the office market could indeed shrink even once the pandemic fades. The company is gearing up in other areas including horticulture and agriculture, UV-C to deactivate the coronavirus, wellbeing, 3-D printing, solar, and others.
The office market is a key prong in the company's important push into the Internet of Things (IoT) and connected lighting, where growth has been slow, as LEDs reported in a recent article based on presentations during Capital Markets Day.
Editor's note: LEDs would like to point out an error we made in the original story, in which we stated that Signify's digital solutions division had connected only 3% of the lights in its installed base. In fact, 3% is a general industry figure and represents an estimate for year-end 2020. Signify's own percentage appears to be higher. The company would not reveal its own number. After we published, Signify clarified that it had 71 million connected light points at the end of the third quarter. It did not provide that figure during Capital Markets Day, when it stated 56 million, which was the number of connected light points at the end of 2019. The company does not yet have a full year 2020 count, and thus abstained from using a 2020 number in the annual presentation. We have updated that story linked in the prior paragraph to reflect the correction and clarification.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]m).
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