- Installed Base of Connected Light Points: 136 million.
- LED-Based Sales: 86% of total sales, up from 84% a year ago.
- Comparable Sales Decline: 8.4%, impacted by conventional sales decline and soft market conditions in Europe and China.
- Adjusted EBITA Margin: Decreased by 40 basis points to 7.9%.
- Net Income: EUR63 million, up from EUR45 million in Q2 last year.
- Free Cash Flow: EUR51 million.
- Professional Business Nominal Sales: EUR959 million, with a comparable sales decline of 8.3%.
- Professional Business Adjusted EBITA Margin: Declined by 30 basis points to 8.1%.
- Consumer Business Nominal Sales: EUR297 million, with a comparable sales decline of 2.4%.
- Consumer Business EBITA Margin: Increased by 160 basis points to 7.1%.
- OEM Business Nominal Sales: EUR106 million, with a comparable sales increase of 0.1%.
- OEM Business Adjusted EBITA Margin: Increased by 370 basis points to 13.9%.
- Conventional Business Nominal Sales: EUR114 million, with a comparable sales decline of 27.6%.
- Conventional Business Adjusted EBITA Margin: Declined by 420 basis points to 15.7%.
- Working Capital Reduction: EUR138 million, from 8.9% to 7.9% of sales.
- First Half Comparable Sales Decline: 9.2%.
- First Half Adjusted EBITA Margin: Declined to 8.1%.
- Guidance for Adjusted EBITA Margin: Lower range of 10% to 10.5%.
- Guidance for Free Cash Flow Generation: 6.6% to 7% of sales.
Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Increased the installed base of connected light points to 136 million.
- LED-based sales accounted for 86% of total sales, up from 84% a year ago.
- Net income rose to EUR63 million from EUR45 million in Q2 last year.
- Free cash flow was EUR51 million, despite higher restructuring payouts and cash outflows from working capital.
- Sustainability efforts are ahead of schedule, with significant progress in reducing greenhouse gas emissions and increasing circular revenues.
Negative Points
- Comparable sales declined by 8.4%, impacted by the accelerated decline of conventional lighting and soft market conditions in Europe and China.
- Adjusted EBITA margin decreased by 40 basis points to 7.9%, due to gross margin expansion being offset by fixed costs.
- Professional business sales declined by 8.3%, mainly due to softness in Europe and China.
- Consumer business sales declined by 2.4%, primarily due to lower sales in China.
- Conventional business sales dropped by 27.6%, with the adjusted EBITA margin declining by 420 basis points to 15.7%.
Q & A Highlights
Highlights from Signify NV (PHPPY, Financial) Q2 2024 Earnings Call
Q: Can you provide some indication on how organic growth will trend in the second half of the year?
A: Eric Rondolat, CEO: We expect a sequential improvement in organic growth in the second half, driven by the OEM and consumer businesses, excluding China. The magnitude of improvement could be slightly superior to what we saw between Q1 and Q2. We remain cautious about the professional market in Europe and China.
Q: How do you see margins improving in the second half, given the current guidance?
A: Zeljko Kosanovic, CFO: We expect a sequential improvement in margins due to three factors: improved top-line growth, continued gross margin discipline, and the impact of cost savings from restructuring programs, which will be most significant in Q4.
Q: Can you elaborate on the pricing situation and its impact on your business?
A: Eric Rondolat, CEO: Pricing has slightly degraded between Q1 and Q2, particularly in India and China. We are seeing price erosion in these markets, but we expect some stabilization in the second half due to potential price reevaluations in response to rising commodity and transportation costs.
Q: How are you positioning for potential new tariffs on imports from China to the US?
A: Eric Rondolat, CEO: We are mitigating potential tariff impacts by manufacturing in other countries like India and Indonesia. We have also relocated some production to Mexico. These steps make us better prepared than during the first wave of tariffs.
Q: What are the trends in the European professional market, and how do they compare to your competitors?
A: Eric Rondolat, CEO: Our European professional market is impacted by a high base of comparison from last year, a one-off project in Ukraine, and a slowdown in distribution channels. We are cautious about the construction non-residential market in Europe and have adjusted our forecasts accordingly.
Q: How will the European performance of buildings directive impact your business?
A: Eric Rondolat, CEO: The directive is positive for us as it emphasizes connectivity and building management systems (BMS), areas where we are strong. We expect this to drive growth in connected lighting and BMS integration over the next few years.
Q: Is the expected improvement in the consumer business in the second half driven by price promotions?
A: Eric Rondolat, CEO: While there will be price promotions in Q4, they are in line with our usual practices and should not significantly impact margins. We are also preparing for higher volumes, which will help dilute fixed costs.
Q: Can you provide more details on the performance of connected lighting in both professional and consumer segments?
A: Eric Rondolat, CEO: In the professional segment, connected lighting is growing outside Europe. In the consumer segment, Philips Hue is rebounding and showing positive growth, while WiZ is facing challenges in some geographies but has plans for the second half.
Q: How does the partnership with Mercedes-AMG Petronas Formula 1 Team fit into your marketing strategy?
A: Eric Rondolat, CEO: The partnership aims to elevate the Signify brand and promote our consumer products like Philips Hue and WiZ. It will help us reach more consumers and enhance their experiences with connected lighting.
Q: Are you planning to drop the Philips brand name in favor of Signify?
A: Eric Rondolat, CEO: We are not planning to drop the Philips brand name. It remains valuable, but we may use the Signify brand for new activities and technologies, especially where it adds value.
Q: What are the challenges you are facing in the Chinese market?
A: Eric Rondolat, CEO: The Chinese market is highly competitive with significant price erosion. We are also impacted by a slowdown in construction non-residential projects and long payment terms. Despite these challenges, we believe the market has long-term potential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
