Surging energy costs, ongoing supply chain difficulties, new COVID-19 lockdowns in China, and Russia’s invasion of Ukraine all chipped away at Signify’s first-quarter performance, yet the company managed to increase sales and profits.
Although margins slipped compared to a year ago, price increases, transportation surcharges, and other measures helped the company through the quarter ending March 31. Comparable sales rose 6.4% (11.8% on a nominal basis) to €1.79 billion and net income jumped 44.7% to €87 million. The revenue rise was driven largely by the company’s Digital Solutions division, which sells lighting and IoT systems to the commercial and government markets.
“As you know, operating conditions in the quarter became more challenging,” CEO Eric Rondolat said on a web call with analysts this morning. “Our main priority in the first quarter was to safeguard and support our Ukrainian employees and their families to the best extent possible. We are happy to report that all of our people are safe, and we were proud to see the very strong engagement from our colleagues and the Signify Foundation in supporting the people and communities so desperately affected by the war. Investments in Russia were stopped and all new business was paused since Feb. 25.”
Russia invaded Ukraine on Feb. 24.
The company had previously not commented on its business in Russia, as it worked to provide lighting needs to Ukraine’s displaced people.
Rondolat said war-related impairments were among the costs that capped profits at €87 million. EBITA margins dipped from 10.8% in 2021 to 10.5%.
He cautioned that several new lockdowns in China, as well as the recent surge in energy prices, are making the future less predictable. He also noted that “inflationary headwinds” could hurt the company’s consumer division, known as Digital Products, which sells LED bulbs and Hue and WiZ brand connected lighting to the home market. That division enjoyed growth during 2020 and 2021 COVID-19 lockdowns amid consumer stay-at-home tendencies. That growth has flattened.
For now, Signify is sticking with its earlier 2022 year outlook of comparable sales growth of 3 to 6%, and of EBITA margin improvements of 50 basis points (this quarter’s contraction was 30 basis points).
A chain reaction from China's lockdowns?
The lockdowns in China could have several blunting effects, including more supply problems as they could affect Signify shipments of components to other manufacturers and of finished goods.
“China is a worry,” the Signify boss said. “We don’t see so much of an impact yet in Q1. Although a paralysis of some of the key regions and some of the key harbors, namely Shanghai and to a given extent Ningbo, would certainly have an impact on the supply chain.”
Rondolat described the lockdowns as a surprise.
“The situation is extremely fluid,” he said. “Nobody knew at the end of the previous quarter that this would happen. At this point in time, I would say that China doesn’t have a major impact on the supply chain. And the supply chain is globally improving. If China goes into a massive lockdown, we could have a further deterioration.”
Energy costs may drive other market initiatives
Just as the new lockdowns are a concern, so too are soaring energy prices. To some extent, fixed-price contracts that Signify signed a while back for renewable energy will help the company cope. But most of the company’s energy costs come from gas consumption.
A silver lining is that energy price rises are causing users more than ever to investigate the energy savings of converting to LED lighting, Rondolat said. That includes horticultural users, for whom energy savings in the past has not been a top priority in selecting LED over conventional light sources such as high-pressure sodium (HPS).
In its quarterly announcement today, Signify gave no update on UV-C sales. In the early stages of the pandemic, Signify ramped up a UV-C product portfolio that was intended to help deactivate the SARS-CoV-2 virus. Although sales seems to have gotten off to a slow start, the company provided encouraging signs three months ago.
Signify and Rondolat today also provided insights on how Signify might soon see an uptick in conventional products, and on the company’s green sales and initiatives. LEDs Magazine will report on these separately.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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