Profits up at Signify, but cost cutting now includes layoffs

Signify continued to withstand the financial impact of the coronavirus pandemic, as it today reported fourth quarter and year-end rises in net income. But comparable sales declined, and the profits came via cost controls and other measures that now include 735 job losses as the company anxiously monitors availability of components and raw materials required to build its products.

The revenue slowdown was especially noticeable in the professional sector, where the health crisis has curtailed activity in commercial offices and other spaces that are the focus of that business. Conversely, comparable sales in the home sector, which includes Signify’s Hue and Wiz brands of connected lighting, edged up. Sales of UV-C disinfection lighting and of horticultural products — both of which span different Signify business units — also performed well.

“The ongoing nature of the pandemic means we remain cautious about market developments in 2021, but we are confident in our ability to further adapt, as demonstrated throughout 2020,” CEO Eric Rondolat said.

Early in the pandemic, “adapting” included a three-month period of 20% reductions in employee workloads and pay. But even as Signify recently awarded employees by returning the three months of withheld remuneration, it was planning job cuts, including, as LEDs Magazine reported, at its headquarters in Eindhoven, Holland.

Signify today confirmed for LEDs that it is eliminating 600 positions globally from its innovations group and from “supporting functions” including marketing, communications, and human resources, with 250 of those coming from Holland, including Eindhoven and Amsterdam.

“This action is necessary as we must adapt to the long-term economic impact of the COVID-19 pandemic with the lighting industry not expected to return to 2019 levels until after 2023,” a spokesperson told LEDs.

The company did not reveal which areas of innovation are going under the knife.

The 38,000-employee company is eliminating another 135 jobs in the US as it closes a Tupelo, MS plant and transfers its production of luminaires, troffers, and emergency lighting to San Marcos, TX and to Monterrey, Mexico (a move first reported by EdisonReport). The spokesperson said the Tupelo move was not COVID-19 related but that it was made to “improve operational efficiencies and enhance our competitiveness in a rapidly transforming lighting industry.”

Professional fall

For the fourth quarter ending Dec. 31, sales grew 7.4% on a nominal basis to €1.88 billion (US$2.28B), but declined on a comparable basis by 5.9%, compared to 2019’s fourth quarter. Comparable sales do not include operations that Signify acquired after the 2019 fourth quarter. Quarterly net income shot up 39.4% to €137 million ($166M).

For the full year, nominal sales rose 4.1% to €6.5B ($7.89B) compared to 2019, but dropped 12.7% on a comparable basis. Acquisitions that Signify closed from 2019 through 2020 have included North America’s Cooper Lighting, Chinese manufacturer Zhejiang Klite Lighting Holdings Co., Ltd., livestock lighting companies Once and iLOX, and Wi-Fi lighting company WiZ.

The largest of Signify’s three business sectors is the one targeted at the commercial marketplace, called Digital Solutions. On a comparable basis its sales fell for the quarter by 10.2% and for the year by 14.4%. Largely on the strength of the Cooper acquisition, which closed in March 2020, nominal sales rose 27.3% for the quarter to €917M ($1.1B) and grew by 22.8% for the year to €3.25B ($3.94B). Income from operation (EBIT) for Digital Solutions fell 4.1% for the quarter to €47M ($57.1M), and fell 10.4% for the year to €119M ($144.3M).

For the quarter, Signify noted that Digital Solutions dealt with “continued market weakness, particularly in the Americas, parts of Europe, and Southeast Asia.” Factors included slowness in the market for new construction of non-residential buildings, Rondolat said on a conference call with analysts. He noted that commercial construction will still take a while to rebound.

“You need the whole supply chain to make decisions of investment, so we think we need to have a stable economy for a few months if not a few quarters before this actually resumes to historical levels,” Rondolat said on the analysts’ call.

Rondolat gave analysts an optimistic assessment of Signify’s home business sector — called Digital Products — which includes smart lighting lines Hue and WiZ. He noted that the “business perspective” at the moment is “much stronger on the consumer side of the business than what we see on the professional side.”

With people confined more to their homes these days, Rondolat noted that customer awareness of connected lighting at home has grown. Both Hue and the lower-priced WiZ “have found their spot on the market and they’ve been progressing extremely well,” he said. “Wiz was quite strong in 2020,” he said, adding also that Hue consumers increased their purchases of additional light sources. EBIT for Digital Products spiked up 19.1% for the quarter to €121M ($146.8M), and jumped 25.3% for the year to €269M ($326.3M). That was despite a 2.8% quarterly decline in nominal Digital Product sales to €711M ($862.5M) , and a 5.1% drop for the year, to €2.29B ($2.78B). Comparable sales increased 2.5% quarterly (Signify did not explain the discrepancy) and fell 8.3% for the year.

UV-C

One product area of great interest in the lighting industry is UV-C, the ultraviolet technology that can deactivate SARS-CoV-2, also known as the coronavirus. Rondolat gave an upbeat report on Signify’s ramp-up of 12 families of UV-C products, announced last June.

“We see strong traction on the sales,” he said, although he declined to provide numbers. He noted that sales are going better on home products than they are on products geared at the commercial market.

Even though Signify’s UV-C light sources use conventional mercury vapor, Signify spreads the reporting for its UV-C products throughout its three business sectors — Digital Solutions, Digital Products, and Conventional — because some end up in systems with digital connections.

The UV-C in the Conventional groups are tubes that Signify makes on an OEM  basis for other vendors, while the digitally categorized products carry the Signify and Philips flag (Signify is the former Philips Lighting and still uses the Philips brand name).

Signify credited UV-C as well as the conventional (high-pressure sodium) products in its agricultural lighting stable for a recent surge in conventional EBIT, up 80.8% for the quarter to €30M ($36.4M), even as nominal sales tumbled 16.7% to €242M ($293.6M), and as comparable sales fell 11.6%. The quarterly results easily outperformed the year, when Conventional fell 11.2% to €149M ($180.8M) as nominal sales fell 18.7% to €943M ($1.14B) and comparable sales declined 16.5%. The superior quarterly results suggest a profitable surge in UV-C.

LEDs will bring you more on Rondolat’s UV-C update in a separate article.

Supply chain concerns

Addressing the recovery in the ongoing pandemic economy, Rondolat cited a concern over the availability of the components and materials such as metals and plastics necessary for manufacturing its goods.

“At this point in time there’s a shortage because with the pandemic, the industries that were generating and extracting raw material and also some of the other manufacturing industries of components, they under invested or they didn’t continue to invest,” Rondolat explained. “Especially on the consumer side, in connected products, as we see a step up in demand, the whole supply chain was not ready. So we have been seeing a raw material shortage, and some components. We don’t believe this will last over the full year, because we see those industries now resuming their investments.”

It will, however, take a while for the re-investments to yield sufficient output.

“We have probably a lag time here of about maybe 6-to-8 months where they need to rebuild capacity,” Rondolat said.

One effect could be that Signify will raise end-user pricing to maintain margins as materials become costlier than Signify had expected, Rondolat said.

Summing up the general recovery at Signify, Rondolat noted, “In a nutshell, we see a good China, a recovering Europe, a recovering US but with maybe a bit of a longer time lag, and from a business perspective, much stronger on the consumer side of the business than what we see on the professional side.”

Looking out through 2023, Signify said it foresees yearly comparable sales growth of 0‒5%, and an adjusted EBITA margin of 11‒13% in 2023. Its year-end adjusted EBITA margin for 2020 was 10.7%.

Editor’s note: Signify figures are reported in euros and converted to US dollars as current market value at the time of publication.

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

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