Signify weathers the supply chain as sales and profits rise for the quarter and the year

Jan. 28, 2022
Product redesign has played a role. So have price increases. Horticulture remains strong, and UV-C could be picking up.

Supply chain difficulties continued to dog Signify in the fourth quarter, but the company still increased comparable sales by 4.5% and reported a 24.5% leap in income compared to a year earlier, helped by ongoing cost cutting, a comparatively soft 2020 quarter, and price increases.

Sales for the quarter ended Dec. 31 registered €2 billion ($2.23B) and net income tallied €170 million ($190M). For the year, the world’s largest lighting company reported similar percentage gains, as comparable sales grew 5.5% to €6.86B ($7.63B) and net income gained 21.4% to €407M ($453.81M).

In announcing financial results, Signify also revealed a large ultraviolet C-band (UV-C) disinfection system deployment across 34 TTFB chain restaurants in Taiwan, with another 100 locations to possibly follow. It is the latest sign that UV-C uptake of Signify products could be accelerating. Earlier this month, the company said that it is providing 7500 mobile UV-C products to schools in Munich. Signify uses mercury-vapor technology rather than LED for its UV-C, which is used to deactivate pathogens such as the SARS-CoV-2 virus that causes COVID-19.

Today, CEO Eric Rondolat also expressed optimism that the horticultural business would continue on a strong path, anticipating 20% industry wide growth to €1.6B ($1.78B) by 2024. He did not specify what Signify’s share of that would be. But he noted that the company’s recent agreement to acquire Fluence by Osram will be a significant contributor, along with the company’s existing horticultural business, which continues to rack up deployments.

Rondolat also revealed that profit margins at Fluence are below Signify norms, but he was confident of rectifying that.

LEDs Magazine will report more on today’s UV-C and horticultural news in separate articles.

Rondolat’s cautious but upbeat appraisal about the supply chain situation contrasted with his tone three months ago, when things had gotten so bad that he told analysts, “I’ve never seen anything like it.”

On a web call with analysts today, he credited a number of measures the company has taken for helping to offset both the shortage of parts and clogged ports.

“Component supply lead time has substantially increased,” Rondolat said. “This led us to redesign products and find alternative sources of supply in record times.”

The company in some instances also increased inventory and found alternative transportation routes.

It was able to offset the cost of these actions with price increases, he noted.

“Overall, we are remaining cautious on the supply chain situation, and based on the most recent trends we are expecting continued logistics issues in H1 2022, with improvements in H2,” Rondolat said.

Breaking down the fourth-quarter financial results by division, the sales growth was particularly noticeable in the Digital Solutions division, where comparable sales were up 14% to €1B ($1.12B), and EBITA was up 73.3% to €130M ($145M; the company does not provide “net income” by division). Digital Solutions sells to commercial and government users and the like. For the year, the sales growth was a much more limited 3.4%, to €3.5B ($3.9B).

“The division faced a slower recovery throughout the year driven by continued lockdowns and a high exposure to components shortages,” Rondolat explained. “Demand picked up in the second half of the year, with a particularly strong fourth quarter.”

Conversely, the Digital Products division — which includes home products such as LED lamps and Signify’s Hue and WiZ smart lighting systems — tapered off in the fourth quarter compared to last year, when stay-at-home behavior was in pandemic vogue.

For the quarter, comparable sales edged up by 1.6% to €737M ($821.76M), and EBITA declined 8.7% to €112M ($124.88M).

Sales of conventional products, which include non-LED bulbs such as fluorescent and also mercury-vapor UV-C that the company has offered on an OEM basis, fell 11.4% for the quarter and 6.9% for year, to €219M ($244.19M) and €861M ($960M), respectively. EBITA was up 23.8% for the quarter at €37M ($41.26M) and up 5.9% for the year at €158M ($176.17M). The company said three months ago that it is de-emphasizing its OEM UV-C business in favor of finished, Signify-branded UV-C products.

Rondolat also reported progress in Signify’s Brighter Lives, Better World 2025 program, which has aggressive goals to reduce carbon, increase materials reuse, increase production of health-supporting lighting, and put more women into leadership positions. The initiative endured an executive departure last year, as Nicola Kimm, who headed many of the programs, left to join German cement maker HeidelbergCement Group as chief sustainability officer.

Meanwhile, ongoing savings will come from, among other areas, the sell-off of real estate.

Rondolat provided an outlook for 2022.

“As we continue to actively navigate through the gradually improving components and logistics environment, we are expecting a comparable sales growth in the range of 3–6%, a continued adjusted EBITA margin improvement of up to 50 basis points, and a free cash-flow generation in excess of 8% of sales,” he said. “We are confident we will manage the external volatility with the same agility as we demonstrated in the last two years.”

MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).

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About the Author

Mark Halper | Contributing Editor, LEDs Magazine, and Business/Energy/Technology Journalist

Mark Halper is a freelance business, technology, and science journalist who covers everything from media moguls to subatomic particles. Halper has written from locations around the world for TIME Magazine, Fortune, Forbes, the New York Times, the Financial Times, the Guardian, CBS, Wired, and many others. A US citizen living in Britain, he cut his journalism teeth cutting and pasting copy for an English-language daily newspaper in Mexico City. Halper has a BA in history from Cornell University.