Earnings call transcript: Signify Q1 2025 sees stable earnings with supply chain flexibility

Signify NV reported its Q1 2025 financial results, showing stable earnings amidst a challenging market environment. The company achieved nominal sales of €448 million, a slight year-over-year decline of 1.3%, and an adjusted EBITA margin of 8.0%. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, with a notably low P/E ratio of 7.43x and an attractive dividend yield of 8.2%. Despite these figures, Signify’s stock experienced a modest increase of 1.1% in pre-market trading, reflecting investor confidence in its strategic initiatives and flexible supply chain management.

Key Takeaways

• Nominal sales for Q1 2025 reached €448 million, a 1.3% decrease from the previous year.
• Net income improved significantly to €67 million, up from €44 million in Q1 2024.
• The company maintained a stable adjusted EBITA margin of 8.0%.
• Connected light points increased from 126 million to 153 million, indicating growth in smart lighting solutions.
• The stock price rose by 1.1% in pre-market trading, signaling positive investor sentiment.

Company Performance

Signify’s Q1 2025 performance reflects a mixed but stable outlook. While nominal sales decreased slightly, the company managed to improve its net income significantly, suggesting effective cost management. The increase in connected light points highlights the growing demand for smart lighting solutions, a key area of focus for the company. Despite challenges such as tariff pressures and market softness in Europe, Signify’s strategic initiatives, including supply chain diversification and local manufacturing, position it well for future growth.

Financial Highlights

• Revenue: €448 million, down 1.3% year-over-year
• Net income: €67 million, up from €44 million in Q1 2024
• Adjusted EBITA margin: 8.0%, down 30 basis points
• Free cash flow: €40 million

Outlook & Guidance

Looking ahead, Signify expects low single-digit comparable sales growth, excluding conventional products, and a stable adjusted EBITA margin for 2025. The company aims to generate free cash flow equivalent to 7-8% of sales. Signify is also continuing its share buyback program, reflecting confidence in its financial health and future prospects.

Executive Commentary

CEO Erik Rondolat emphasized the company’s adaptability, stating, "We have a plan to be able to mitigate and flexibilize the supply chain to the absolute maximum." He also highlighted the potential of the Chinese market, saying, "We see China could be a positive contributor to the performance in 2025."

Risks and Challenges

• Supply Chain Disruptions: Ongoing tariff issues and geopolitical tensions could impact supply chain efficiency.
• Market Saturation: The lighting market is highly competitive, and growth may slow in mature markets.
• Economic Uncertainty: Macroeconomic factors, including inflation and interest rates, could affect consumer spending.
• Regulatory Changes: New regulations, particularly in environmental standards, could increase operational costs.
• Currency Fluctuations: Exchange rate volatility may impact financial results, given the company’s global operations.

Signify’s Q1 2025 results reflect its resilience in a challenging market environment. The company’s strong financial position is further evidenced by its impressive Piotroski Score of 7 and healthy Altman Z-Score of 6.61, as reported by InvestingPro. With strategic initiatives in place and a focus on innovation, the company is well-positioned to navigate future uncertainties and capitalize on growth opportunities.

Full transcript - Signify NV (LIGHT) Q1 2025:

Conference Operator: Hello, and welcome to the Signify First Quarter twenty twenty five Results Conference Call hosted by Eric Rondolat, CEO Zelko Kosanovic, CFO and Elke Gairdes, Head of Investor Relations. Throughout today’s call, all participants will be in a listen only mode.

Later, we will conduct a question and answer session. You may register for questions at any time by pressing star one on your telephone keypad. We kindly ask you to limit the number of your questions to one And now I’m pleased to hand the call over to Telke Gervis. Please go ahead, ma’am.

Elke Gairdes, Head of Investor Relations, Signify: Good morning, everyone, and welcome to Signify’s earnings call for the first quarter twenty twenty five. With me today are Erik Condola, CEO of Signify and Zelko Kusanovich, CFO. During this call, Erik will first take you through the first quarter highlights, after which Zelko will present the company’s financial performance. Erik will then come back to discuss the outlook for the remainder of the year. After that, we will be happy to take your questions.

Our press release and presentation were published at 07:00 this morning. Both documents are available for download from our Investor Relations Web site. The transcript of this conference call will be made available as soon as possible. And with that, I will hand over to Erik.

Erik Rondolat, CEO, Signify: Thank you, Tatke. Good morning, everyone, and thank you for joining us today. Let’s start with some highlights for the first quarter twenty twenty five on Slide four. Our first quarter performance landed in line with our expectations, showing sequential improvements in most of our businesses with a strong contribution of our connected offers. Indeed, we increased the installed base of connected light points from 126,000,000 in Q1 twenty twenty four to 153,000,000 at the end of the last quarter.

Normal sales decreased by 1.3% to €448,000,000 including a positive currency effect of 1.4%. Comparable sales declined by 2.8% as growth in the consumer business across all regions was offset by weakness in Professional Europe and the OEM business. Comparable sales declined by 0.9% without the negative drag of the conventional business. Connected sales grew in the Professional and Consumer businesses. In China, we saw a faster than expected return to growth in both Professional and Consumer segments, which brings optimism for the rest of the year.

The adjusted EBITA margin decreased by 30 basis points to 8%, mainly due to the under absorption of fixed costs as well as the weakness of the high margin Professional business in Europe causing an adverse segment mix effect. These two effects offset the benefits from the cost reduction program. Net income came at EUR67 million compared to EUR44 million in Q1 last year. The year on year improvement is mainly driven by lower restructuring costs and financial expenses. Finally, our free cash flow generation was €40,000,000 this quarter.

Let me now move on to our four businesses. Starting with Professional Business on slide five. Nominal sales in Q1 were EUR $942,000,000, with comparable sales showing a decline of 1.8%. During the quarter, we saw sequential improvements across most of our businesses and robust growth of agricultural lighting. In Europe, we saw continued softness, particularly in the trade channel and the public segment.

The adjusted EBITA margin decreased by 30 basis points to 7.1% and showed great resilience. Indeed, the negative contribution of Europe was partially compensated by a profit expansion in all of the other businesses and the contribution from our cost reduction program. Let’s now move on to the Consumer business, and we move to Slide six. Nominal sales in Q1 were EUR $311,000,000, and the business achieved a comparable sales growth of 3.1% with a positive contribution of all the regions. During the quarter, we continued to see strong demand for our connected home offerings, in particular driven by online sales.

We are also happy to report that our Chinese consumer business has returned to moderate growth. As a result, the top line growth and the cost reduction program, our adjusted EBITA margin improved by 40 basis points to 10.8%. Continuing with the OEM business on Slide seven. Nominal sales were EUR92 million with comparable sales showing a decline of 10.7%. I would like to give a little more perspective on that performance.

About half of that decline is attributable to two major customers, and we believe that this effect will persist in the quarters ahead. In addition to this, we also are seeing a market environment with intensified price pressure on the gross margin, very specifically in the company business. Consequently, the adjusted EBITA margin decreased to 4.2% due to the gross margin impact and under absorption of fixed costs. Given the start of the year, we anticipate an adjusted EBITA margin in the mid to high single digits in 2025, still remaining above industry average. And finally, let’s go to the conventional business on slide eight.

Nominal sales in Q1 were €92,000,000 with comparable sales showing a decline of 23.9%, reflecting the structural decline of that business. The business retained a solid adjusted EBITA margin of 18.4, also driven by positive pricing. On the next slide, this is Slide nine, I would like to discuss a couple of business highlights. Starting off, with the latest corporate kings, corporate knights, rankings. We were ranked fifteenth globally in the global 100 most sustainable corporation by by Corporate Knights.

But we also ranked third in our sector, which is a testament to our leadership in sustainability. Our professional business upgraded the landmark lighting of the Passipati Bridge in Bandung in Indonesia. For this project, we partnered with Bandung and city governments to install dynamic lighting on the Passipati Bridge. The new lighting will enhance the visual appeal of this landmark and reinforce its status as a city icon. The installation enables flexible, scene based lighting, and through the automated control, the city will achieve 47% of energy saving.

The professional business also delivered the lighting for Renault’s concept store in Milan, Italy. We equipped this new concept store with customized lighting solution using three d printing and providing connectivity through the interact retail management platform. The lighting design enhances the immersive customer experience and supports Renault’s brand identity focused on innovation, design, and sustainability while delivering 60% energy saving. Moving on to the consumer business. So we rolled out new features for the Philips Hue six secure cameras.

These include smoke alarm sound detection, allowing users to receive instant alerts and activate navigational lighting during emergencies. We also enhanced the compatibility with other smart home systems, such as Amazon Alexa, Google Nest Hub, and more. These updates improve a real time safety response and enable broader integration into smart home ecosystems. Next, on slide 10, I would like to discuss our sustainability performance. The first quarter twenty twenty five marked the start of SIGNIFY’s fifth and final year of its Brighter Lives, Better Worlds 2025 sustainability program commitments.

During the first quarter, we were tracking ahead of our 2025 target to reduce emissions across the entire value chain by 40% against the 2019 baseline. Circular revenues increased to 36%, up 1% versus the previous quarter and surpassing the 2025 target of 32%. The main contribution was from serviceable luminaires in the professional business with a strong performance from horticultural lighting. Bratalized revenues remained at 33% and beyond the ’25 target of 32%. This includes a strong contribution from both consumer and professional products with eye comfort that supports health and well-being.

The percentage of women in leadership position decreased by one % to twenty seven percent, which is not in line with our 2025 ambitions. And with this, I would like now to hand over to Zedko, who will take you through our financial performance in more detail.

Zelko Kosanovic, CFO, Signify: Thank you, Eric, and good morning to everyone on the call. So let me dive straight into the financial highlights on slide 12, where we are showing the adjusted EBITA bridge for total Signify. The adjusted EBITA margin decreased by 30 basis points from 8.3% in Q1 twenty twenty four to 8% in Q1 this year with the following developments. The negative volume was 50 basis points. The combined effect of price and mix was a negative 200 basis points.

The effect of price erosion remained stable compared to the previous quarters. And this effect is partially compensated by our bill of material savings and other COGS savings, which had a positive effect of 120 basis points. It’s also good to highlight that the Q1 twenty twenty four gross margin comparison base was at a historically high level of 41.2%. Indirect costs improved by 120 basis points on adjusted EBITA margin level, reflecting the capture of savings from our cost reduction program. We are also continuing to see a segment mix in our total business driven by the decline of our high margin Professional Europe business as Erik had mentioned earlier.

Finally, the currency had a small negative effect of 20 basis points. On Slide 13, I’d like to zoom in our working capital performance during the quarter. Compared to the March 2024, working capital reduced by €31,000,000 or by 10 basis points from 7.3% to 7.2% of sales. Inventory decreased by 41,000,000 Receivables reduced by €23,000,000 Payables were €38,000,000 lower. And finally, other working capital items reduced by €5,000,000.

And with that, I would like to hand back to Eric to wrap up with the outlook and closing remarks.

Erik Rondolat, CEO, Signify: Thanks, Alco. Let’s conclude with the outlook on slide 15. Our teams are highly focused on executing our mitigation plans for the short term impact of tariffs in Q2, while also implementing more structural measures to address the second half of the year. We have built sufficient inventory in The U. S.

To cover our exposure in Q2 and have stopped all further imports from China to The U. S. Our global production and sourcing footprint is allowing us to quickly ramp up our sourcing from geographies other than China, which will be fully in place in H2. Based on our performance in Q1, our current market visibility and these measures to mitigate trade tariffs, we confirm our guidance for the year. So we continue to expect low single digit comparable sales growth excluding conventional.

We also expect a stable adjusted EBITA margin compared to 2024. And finally, we are continuing to expect the free cash flow generation in the range of 7% to 8% of sales driven by a strong cash conversion. Our share buyback program began in February, and we already completed the share repurchases to cover share based remuneration. We are now continuing with the share repurchases for capital reduction. And with that, I will hand over back to the operator for the Q

Conference Operator: you, sir. And our first question is from Martin Wilkie from Citi. Please go ahead.

Martin Wilkie, Analyst, Citi: Yeah. Thank you. Good morning. It’s Martin from Citi. The first question was just to dig deeper into the tariff comment you just made a moment ago.

It sounds like you can shift all or certainly a good amount of the China sourcing in the second half. Does does that cover all components? And I’m guessing you’re buying a lot of electronics and other things that are, at the moment, very heavily dependent on China for certain components. Just if you give us a bit of clarity as to, you know, where you can source those from. Is it a % of what you buy from China?

Just to understand how you’re shifting that sourcing. Thank you.

Erik Rondolat, CEO, Signify: Good morning, Martin. You know, when we, when we talked, at the end of, of q four, you know, in the previous, report, we talked about, you know, less than 20% being our impulsive channel that was encompassing everything. Of course, you know, at the time, it was 25%. One hundred forty five is slightly different. So we have decided, you know, a few weeks ago that we needed to have a very flexible supply chain, you know, especially given, you know, the uncertainties that are still lying ahead and the very high volatility that we’ve seen, you know, in the way the tariffs were implemented in the past in the past weeks.

So we are basically carrying many activities with suppliers, also with our own manufacturing plants in order to be able to move the production that are Chinese dependent, whether they are finished products or components, to other countries. Now what is important also, Martin, it’s to understand the notion of country of origin. So there’s a percentage of local added value that we need to reach in order to define that the content is local. So the teams are looking at at at all these different elements. So the answer is yes.

We have a plan to be able to mitigate and flexibilize the supply chain to the absolute maximum to have the choice, you know, to produce in China or, in other countries. The country that we are targeting at this point in time are mainly, countries of Asia with our suppliers or with our own factories.

Martin Wilkie, Analyst, Citi: Thank you. That that’s really, really helpful. And and a follow-up on tariffs. Obviously, as an industry, the the the main lighting players that are fully sourced in China, particularly white label manufacturers, things like that. So competitors to you, it’s probably too early to tell.

But is this an opportunity for you to gain share then in The US if other smaller competitors of yours are much more dependent on China and perhaps are less able to do that sourcing shift that that you’re looking at?

Erik Rondolat, CEO, Signify: Yes. We do believe so. But then it’s it’s a matter of, of time, and it’s a matter also of, of timing. But, when you look at our footprint, basically, we talked a bit about it, you know, previously, but there’s a a limited portion of the import that are coming from, from Europe. And here, can adjust, you know, through cost improvements or, you know, some, price increases, which we have started to implement in The US.

Then the big the big part of what we bought to The US is coming from, Mexico, and Canada. And for this, you know, we are under the USMCA, agreement, meaning that, most of what we bought is not subject to tariffs, and that’s a big advantage. And then we have less than 20%, which is coming from China, And we think that that profile, is much better effectively than, you know, other, competitors that are much, more dependent, you know, on China. So, you know, it’s a it’s a game where we can have, a lot of opportunities, and speed is of the essence, you know, to be able to see customers that are depending, from, some competitors and try to convince them to work with us. So these are the actions that we’re also carrying at this point in time, you know, on top of all the, other actions that we do, in the in the back office.

So, yes, Martin, we believe that our footprint is advantageous compared to others, and we could potentially acting very quickly, you know, in the coming months and take some share.

Martin Wilkie, Analyst, Citi: Great. Thank you very much.

Conference Operator: Our next question is from Young from Goldman Sachs. Please go ahead.

Meihan Young, Analyst, Goldman Sachs: Good morning. It’s Meihan Young from Goldman Sachs. Thank you for taking my question. I have two. So first one is what have you observed on demand and pricing, and what you have done in the first few weeks since tariffs got implemented in April?

And I’ll ask the second one. Thank you.

Erik Rondolat, CEO, Signify: Yes, Mehdi. Look. In terms of of pricing, what what we’ve seen in q two was the relative stability, you know, when it comes to, to price in most of our businesses. I really have, reported that we’ve seen, a heightened intensity, when it comes to price on the OEM business, but it’s very specific with a very specific technology, but it’s not been the case throughout, the rest of the portfolio. We have started, to increase price in The US, and we have communicated that to the market and it’s already, effective.

And we’re monitoring the situation because pricing, is a factor of two things. First, where is, competition, you know, in order to stay competitive? You know, and making sure that we have a price which is, you know, on the markets, below the threshold, above which, you know, there are stronger incidents on the demand. So it’s a it’s a complicated equation, but this is what the teams are doing locally, you know, trying to increase price, remaining competitive and still attractive on the market.

Meihan Young, Analyst, Goldman Sachs: Understood. Thank you very much. The second question is there has been talks on on there could be a potential tariff deal with China. If anything is negotiated, could be a step down in the in the tariff. Should we expect a a material step up in your own inventories in 2Q if the there is actually a deal?

Erik Rondolat, CEO, Signify: That’s not what we plan. That’s not what we have simulated at this point in time. Know, I think the time is to what we I would say extreme cautiousness also, you know, on our side, on the side of our of our customers because there’s a lot of volatility. There’s a lot of uncertainty. We’re just, trying to adapt having a very flexible supply chain.

I think that’s the name of the game, and we can do it because, you know, we have a global footprint and we have manufacturing plants and suppliers, you know, all over the world, and that’s what we’re trying to do at this point in time. I think it’s not about doing eventually at this stage. It’s about making sure that we are extremely flexible to adapt to whatever we’re to have to face in the future.

Meihan Young, Analyst, Goldman Sachs: And

Conference Operator: our next question is from Chase Coughlin from Lanstrath

Chase Coughlin, Analyst, Lanstrath: I’ll start off maybe with regard to the professional demand in Europe. Of course, you mentioned in the press release and the presentation there was quite a bit of margin effects there from the mix. I’m curious on, yes, we’re seeing some rates come down. Are you seeing any sort of improvement in the order book there? Or what are your expectations in terms of recovery for the rest of the year?

Erik Rondolat, CEO, Signify: Good morning, Chase. Look, we are as we said previously, you know, we’re cautious on Europe. Yes, the rates are coming down, but we see also the economy is being in a in a situation of transition. We’ve seen still, you know, an an economy in in Germany, in The UK, now in France being quite impacted at this point in time. So we’ve seen that slow slowness continuing.

Of course, you know, in q one, this is where we still have a year high compare versus last year when when it comes to our governments in Europe, both top and bottom line. But we’re cautious. The rates are down. It’s a positive. It has not translated, at this point in time in an immediate business recovery.

We are staying cautious for the rest of the year in Europe and we are pretty much in line with what we said at the time, which is, of course, Q1 is a high compare, but we believe that the business should moving forward stop degrading and stabilize, but we don’t plan a rebound in Europe during 2025.

Chase Coughlin, Analyst, Lanstrath: Okay. That’s very clear. And then as my follow-up, regarding the full year ’25 margin guidance, of course, you still expect a stable margin, no change there. But I’m curious because I think it sounds like the OEM margin was perhaps incrementally worse than last communicated. And now, of course, there will be some effects from tariffs.

And then as you mentioned, again, maybe Europe stays weaker for longer. You’re quite cautious there. I’m curious on sort of what’s your thought process there in terms of what are the positive margin drivers do you think that they will now you know, the the cost savings will

Tim Ehlers, Analyst, Kepler Cheuvreux: be able to offset some

Chase Coughlin, Analyst, Lanstrath: of these more incrementally negative items now, or or how are you thinking about that?

Erik Rondolat, CEO, Signify: Well, Chase, first of all, you you may remember when we gave our guidance in at the end of q four, we were told, that we were very conservative. So I think the guidance that we gave at this point in time, because when we give a guidance for the year, we try to make the right assumptions of what can happen. I think we did well because maybe it was seen as cautious, but when we see where we are now, probably it was the right thing to do, you know, to be cautious in an environment which is extremely, extremely volatile. So now we see, you know, if if you take a bit of distance and you look at the big ticket items, we believe that, we’re gonna do better than we had forecasted initially on the consumer business. We believe that we’re to do a bit worse than we had initially forecasted on the OEM business, but we believe that one can compensate the other one, and we maintain our guidance for the year.

Chase Coughlin, Analyst, Lanstrath: Okay, great. That’s very helpful. Thank you, gentlemen.

Conference Operator: And our next question is from Tim Ehlers from Kepler Cheuvreux.

Tim Ehlers, Analyst, Kepler Cheuvreux: So the first question would be about the price development you mentioned and the cost savings that partially offset the price pressure and the gross margin development. Could you maybe elaborate a little bit more on what you see there in terms of trends?

Erik Rondolat, CEO, Signify: And do you see the ability to

Tim Ehlers, Analyst, Kepler Cheuvreux: offset declining prices with better input costs going forward? Or is there some downside risk that costs could come up eventually? Thank you. Yes. Good morning.

So maybe to give a

Zelko Kosanovic, CFO, Signify: bit perspective on the components on the dynamics of the margin. As Eric mentioned earlier, first of all, what we’ve observed and that has been confirmed over the last quarter is stabilization on the dynamic of pricing that we’ve seen confirmed also in Q1. At the same time, we’ve also seen the volumes improving sequentially. And then to your question on the effect and the contribution of, in particular, bit of material savings, we do have a very strong line of sight on the ability to extract further bill of material savings moving forward. So I think we have with the different components, stability on price, improvement on the volume, and continued contribution momentum of, coming from the bill of material savings, which is also coming from all the efforts we are taking on the procurement side, as we speak.

So I think these are the different elements we see.

Tim Ehlers, Analyst, Kepler Cheuvreux: Okay. So net net, gross margin should come up again in the next quarters.

Zelko Kosanovic, CFO, Signify: What what we had indicated earlier, if if you recall, I think the the comparison base, of course, if you look at q one in particular, that was our highest comparison base. So we are positioned at, let’s say, at at a very solid, you know, 40.8 in q one. So what we see is stabilization, moving forward with all those different components playing together. But, again, it’s good to remind that we are comparing ourselves to what was a relatively high comparison base in in 2024. So stabilization I think that all the components of the gross margin, playing as I indicated already.

Tim Ehlers, Analyst, Kepler Cheuvreux: Okay. Great. Thanks for that. Then, follow-up question on China. You mentioned that things are actually improving there, better than expected.

Could you explain the dynamics a little bit? Maybe also comment a bit on the pricing environment because I know that it has been very challenging for you guys. Which trends do you observe in China?

Erik Rondolat, CEO, Signify: Morning, Tim. Yeah. The you know, 2024 has been very difficult for us in China. I think we explained it many times, when we reported our results, last year. But we worked a lot, you know, in the second half of twenty twenty four on adapting, to the market, rebuilding, some of the portfolio, offerings.

We also looked very specifically at some go to markets. And, I think, we’re reaping, what we have sown basically, in Q1, understanding that Q1 is in 2024, the best quarter for China. We had a sequential degradation in Q2, Q3 and Q4. So at the end of the day, it’s a very good sign that the efforts that we have done in the second half of twenty twenty four are bearing fruit at this point in time. And we have, I would say, a performance, which is first showing growth both on the professional and the consumer business.

The the profitability has never been the problem because we adjusted it, but, the the profitability that we’re recording for both of those businesses, in q one twenty twenty five, as we have said also previously, is accretive. So at the end of the day, it’s a top line, gain there, and we’re very happy with what we see in q one. And as q one was our weakest, strongest quarter in 2024, you know, it’s a good it’s a good thing for for for the rest of the year. But what we’re doing there with SOLID, it’s about the offer, it’s about the channels, it’s about the go to market, it’s about the customers. Are we out of the woods?

We’re out of the woods, but I think the good start that we take in 2025, q ’1, is a very good sign for the rest of the year. So I was probably in the past discussions very cautious on China. We were when we started the year very cautious on China. What we see today is that China could be a positive contributor to the performance in 2025 and certainly above the expectations we had when we started the year.

Tim Ehlers, Analyst, Kepler Cheuvreux: Okay, great. Very clear. Thanks for that.

Conference Operator: Our next question is from Marc Hesseling from ING. Please go ahead.

Marc Hesseling, Analyst, ING: Yes. Thank you. First question is actually on The U. S. Market.

I think in the previous update, you really called out The U. S. As being one of the strong parts of the portfolio. I think it’s still relatively strong, also looking at what some of the comments on the geographies and, for example, also on horticulture. Just want to get your full picture on how you see that market.

Is it as strong as it last year? Is changing a bit? And yes, also given the tariffs, just on the demand side, did you see any impact there yet?

Erik Rondolat, CEO, Signify: Yes. Good morning, Mark. You know, when we look at at the portfolio of countries and geographies, probably, you know, things are changing a little bit because we see now India being very strong. We see China becoming also strong. It’s very important for us because these are countries where we are well implemented and for, you know, a very long time, enjoying very high market share in India and probably much lower market share in China, but in markets that are the that have their own dynamics.

So we believe that these markets are gonna contribute positively. We’ve talked about horticulture. Then would come The US market, which has still been, you know, in q one performing, still, you know, better, than Europe. But you start to see, you know, small sign in The US of, you know, investment that, could take place and maybe are not taking place out of, you know, consciousness because not only about the tariffs, also because of an expectation, you know, on the on the rates. I I I think The US market has been for us systematically, much more sensitive to rates than the European market.

It takes a bit more time in the European market, but it’s it goes very quickly in The US. So look, we don’t see alarming signs in The US in in q one, but we are cautious. We know that price increases could at one stage impact the demand. If you remember, Mark, this is also the reason why we didn’t transfer all the inflation to price in 2021 and in 2022 just to make sure that we were staying at a level that was helping the demand not to fall. Now what the future is made of, we don’t know.

We will just adapt. We’ll just adjust. Now what we also think is when it comes to price increases, given our footprint and given our strong footprint in Mexico and Canada, we probably would have to increase prices much less than others, you know, in order to cover for for the tariffs. So at this point in time, no signs that the market is impacted by the tariffs, but we know that they can be and there will be a bit of a pressure on price that can, on one hand, impact the demand, but the price will also increase the top line. So we’re navigating, you know, in those two different types of situation, and we try to find the right balance.

This is where we are at this point in time now.

Marc Hesseling, Analyst, ING: Yes. Clear. Clear. And then the second question on the OEM. You call out the two large clients the price pressure.

But also sometimes in the past, there’s also been a bit of division that is sort of a bellwether for the rest of the industry, maybe also because of stocking effect. Just try to separate that. Is this two clients, is that a one off element? Is it more structural? Does it concern you that this business has deteriorated a or is it more of a quarterly blip?

Just just a bit more detail, please.

Erik Rondolat, CEO, Signify: Yeah. Important question, Mark. Look. First of all, we see that business as very different from the other ones given the technology that it’s using and also given the competitive landscape and its and its nature, which is more, you know, a global business than the regional business. But at the end of the day, yeah, we wanted to call two large clients because they’re part of you know, they they make half percent of the decline that we have experienced.

So for one of them, it’s in The US, and it’s a known story. You know that one of our customer bought a business which is, similar to our, OEM business to insource. And that has been an ongoing situation because we were doing big volumes, with that customer, and we’ve seen a regulation over probably a year to a year and a half. So it’s still continuing at a lower level, but we have also with that customer, you know, agreed volumes, and the volumes in q one were much lower than the agreed volume between us. So that’s the reason why we want to call it.

The second case is that a big customer that’s this time this time, it’s very specific, and it’s in Europe. And we believe that this customer is facing slight headwinds on the market. That’s why, you know, they’re buying less from us. But, at the same time, we also believe that these customers may have found, you know, other suppliers. So I would say these two, situations have a structural element in it.

That’s the reason why, you know, we see that, they’re gonna be somehow, you know, a bit of what we have experienced in Q1 continuing in the upcoming quarters. This is also the reason why we see that business performing for the full year in terms of adjusted EBITA margin in between single to high mid to high single digit performance. So this is where we’re positioning that business at this point in time. Now when you take a bit of distance and you look at the industry, with that level of performance, we are probably two to three times more profitable than, you know, the other competitors on that market. So our our performance still stays high above the industry.

Is it announcing anything specific on the other businesses? I I don’t think so, Mark. You know, even at the time of component, that was very, very specifically targeted on the on that on that specific business.

Marc Hesseling, Analyst, ING: Great. Great. Thanks. Very clear. Thanks.

And then also thanks for the cooperation in the last couple of years. It was really, really great, Eric. Thanks.

Erik Rondolat, CEO, Signify: Yes. Same here, Mark. Thanks a lot.

Conference Operator: Our next question is from Claire Liu from Morgan Stanley. Please go ahead.

Claire Liu, Analyst, Morgan Stanley: Hi. Good morning, Eric and Zeko. Thanks for taking my question. My first one is just on tariff and related kind of China competition. What do you expect or what do you see as the risk of, you know, intensifying competition in China and Europe, with all these excess capacity, from Chinese players potentially if their products cannot go into US anymore, and any kind of related pricing pressure in Europe and China?

Thank you.

Erik Rondolat, CEO, Signify: Good morning, Claire. Look. It’s it’s difficult because we don’t have a crystal ball, so we try to, have an understanding of how the industry is performing and how the industry is behaving on the basis of what we know. Our assumption is the following one. First, there’s a lot of Chinese competition which is already in Europe.

So it’s not, as if Europe, you know, was, a new territory, that could be, taken. The the the Chinese companies today that are operating in US, if they want to operate in Europe, they will have to adapt their productions, because we don’t manufacture the same products in Europe than in The US. Nothing is impossible. But if you are a relatively small company in China and you’re operating in The US, you have to change the products. You have to get them certified, and then you have to go on a market which is already very populated.

It’s a complicated undertaking, and we believe that, given that situation, given that the market in Europe, is not growing at this point in time, that risk is limited. And we are monitoring it as we speak. We know that our customers today are not in a situation where they wanna take new suppliers because the market in Europe has been shrinking. We are supporting these customers to the best of our abilities. We know the go to market.

We know the technology. We have the existing connections. Look, we don’t want to sound complacent, but we think it’s gonna be a difficult move. We’re it, and we are ever more present in front of our customers. And also proposing to our customers, you know, an a brand and a b brand, the b brand operating, you know, at a lower level, at a at a more competitive level.

So these are, the answers that we bring to the market. And, we are there. We have feet on the ground. We talk to our customers on a daily basis. And, we’re here to defend that territory, but also try to grow and take share.

So we’ll see, but we see that the risk of having an invasion of new players because of them not being able to sell on The US market is remote at this point in time, but we’ll keep informing you as we go.

Claire Liu, Analyst, Morgan Stanley: Thank you. That’s very helpful. And second one is just quickly to confirm the structural measures that you mentioned to implement in the second half, diversifying the sourcing out of China. Would this bring any restructuring costs for second half and any impact on margins?

Erik Rondolat, CEO, Signify: That’s not the way we have planned it. Maybe, you know, when we talked about structural measures, we should have been a bit clearer, Claire. This is structural measures on our manufacturing footprint. So at this point in time, you know, we have listed, I think, the good 75 to 80. Okay.

Yeah. I think we have 75 to 80 projects, where, we are bringing, you know, in some of our suppliers’ factories or our own factories new offers to be produced. And that’s part of the diversification and the flexibilization of the supply chain that I was talking about. We think it’s absolutely paramount to do that. And this is why we’ve talked about structural measures because these measures will stay.

You know, we think that at this point in time, we need to be able very quickly to decide, if we wanna keep production in a given space or move it, you know, in a different geographical entity, whether it is an entity that belongs to our suppliers or belongs to us. You may have seen also, Claire, that part of the strategy that we also had indicated previously, we have signed JV in with Dixon, you know, in India, which is a very important move for us. So it’s similar to what we have done with scale light, you know, in China in order to make sure that in a major country, major country for us because it is a major country, major market, but also a major country because the market has a huge huge potential that we have the capability to manufacture locally for that market, but also use that manufacturing capability, to be able, to export. So these are some of the structural measures that we have talked about. They are on the footprint, working on our own manufacturing plants, our supplier manufacturing plants, and we have not planned for any restructuring as far as distancing.

Claire Liu, Analyst, Morgan Stanley: Okay. Thank you

Marc Hesseling, Analyst, ING: very much. Thank

Conference Operator: you. We will now move to our next question from Adam Parr from Redburn. Please go ahead.

Elke Gairdes, Head of Investor Relations, Signify0: Good morning. Thanks for taking my question. So first, a question on pricing, if I may. Given OEM worse than expected, is it fair to say that you have increased prices more than expected in Professional and Consumer? And then very quickly, a second question.

Have you seen any improvement in discussions with customers due to the German infrastructure spending plan, please? Thanks very much.

Zelko Kosanovic, CFO, Signify: Yes. Good morning. So maybe on the pricing, look, as we mentioned, the dynamic that we’ve seen on on price across the businesses for most of the business, particularly all the businesses has been, stability. In some case, even it’s a positive contribution. So what we’ve seen in the components part, specific on the components part of, OEM, and also mostly in particular in the, outdoor segments has been an acceleration on a further price erosion.

But I think it’s not necessarily because of the price increases as we said before, depending on how we see also, of course, the the effect of the the tariffs that should lead to a more inflationary dynamic moving forward. But so far, what we’ve seen in the last quarter has been pretty much stabilization across all the businesses. And, yes, further intensity observed on the on the components part of the OEM business that has very different dynamics as Eric was mentioning earlier. So I think it’s very specific to, certain areas within the OEM business while it has stabilized across the board on all the other businesses.

Erik Rondolat, CEO, Signify: Adam, on your German, infrastructure, stimulus question, So we’re monitoring it. You know, at this point in time, we don’t see a direct, impact on our top line. Of course, you know, we are equipping infrastructure with energy efficient lighting. So we believe that there should be opportunities in the coming weeks and months. We’re monitoring it, but nothing that shows in the numbers in Q1.

Elke Gairdes, Head of Investor Relations, Signify0: Thanks very much. That’s very helpful.

Conference Operator: Thank you. We will now move to our next question from Anna Ratcliffe from Bank of America. Please go ahead.

Elke Gairdes, Head of Investor Relations, Signify1: Hi. Thanks for taking the questions. Appreciate all the I was wondering if you could give us an update on what you’re seeing by end market, maybe any pockets of strength or weakness to call out.

Erik Rondolat, CEO, Signify: Yep. And the the issue is that I need to now the situation is so contrasted that I need to look at end markets and sometimes also geographies. But let me try to sum it up. What we are seeing, we are seeing a good traction on the consumer business. So that’s something that we are seeing in all the geographies where we operate.

You may remember that after a very strong 2020 and 2021, the market on the consumer business when people were able to go out and and go again on on holidays, they spend less time, you know, on on equipment. So we had then negative performance in ’22 and ’23. You know, at the same time, we saw ’24 as the year where things would stabilize and that we would reach the bottom. That’s the case. You know, we’ve been in the past quarters seeing a very good intake on the consumer business, and I would say worldwide.

Also very strong in The US. We see also a good performance on the consumer business, in Europe. So what we had envisaged is actually happening, you know, after a big growth, a decline, a stabilization, and now we are back, you know, on the normal growth path. The the good elements behind this and that I can expand it, you know, more globally, we see also that the connected parts of our business. It’s not exactly in our segments because we do connectivity, you know, in the consumer business, but we do also connectivity in the professional business.

So we see that overall, you know, category of offers on all the segment that it reaches being also fairly strong, in, in q one. Maybe we have to put on the side Europe where we see that Connected in Europe, especially on the public segment, has been weaker. But otherwise, we see also very good traction in the connected part of the business. Now moving forward, we see China and India strong. I’ve talked about it.

And when we go more into the segments that are touching at this point in time, our professional business and indoor. This is where we see also a bit of weakness in The US to a given extent also in Europe. And this is the market that goes also to very diffuse customers, the small installer. And this is a translation of the fact that if there are projects that, people had planned, maybe, they don’t do them at this point in time, they cancel or they delay. And we see also that trend, which is a direct consequence of the uncertainty, which is lying in the markets when it comes to, you know, some fundamental, you know, economic parameters or when it comes also from, you know, what is going to happen to the rates.

So you see there’s a lot of very different end segments, a lot of different situation that we need to deal also by by geographies. Another business that we’re very happy with, but once again, it’s been a business that has grown, gone down, and it’s growing again, horticulture. So horticulture has been very strong in 2024 after a very difficult 2023. And it’s showing very, very good signs also in 2025. We’ve done a stellar Q1 and we see with the order intake that we have at this point in time that it should be a good business for for the full year.

Elke Gairdes, Head of Investor Relations, Signify1: Great. Appreciate all the color. And then I just wanted to, if I could sneak in another one, ask a little bit about the consumer margin. It stepped up year over year, but it stepped down even though growth was resilient. Is there anything to call out there or is that just normal Q1 seasonality?

Erik Rondolat, CEO, Signify: Normal Q1 seasonality. Know, q q four is from far the biggest quarter in the consumer business. So you would expect to have, basically, q four is the equivalent of two quarters, you know, in terms of volume. And, so you can, imagine that you can dilute the cost much better when you have a two times the volume. So it’s totally normal.

Elke Gairdes, Head of Investor Relations, Signify1: Great. Thank you very much.

Conference Operator: Thank you all. And we have time for one last question today. Tim Ehlers from Kepler Cheuvreux. Please go ahead.

Tim Ehlers, Analyst, Kepler Cheuvreux: Yes. Good morning. Thanks for letting me ask another question. Just a quick one So would you attribute the recovering consumer to the new products you introduced to the market last year, or was it a recovery of existing product?

Thanks for that.

Erik Rondolat, CEO, Signify: I think it’s it’s both. I I think we see clear rebound on the connected offers and new product, existing products. In China, we have developed new offers. We have positioned, you know, on special segments, which is probably expanding it, but the team is both.

Tim Ehlers, Analyst, Kepler Cheuvreux: Okay. Great. And then also from my side, all the best, Eric, for your time after SIGNIFY.

Erik Rondolat, CEO, Signify: No. Thanks a lot, team.

Conference Operator: Thank you. With this, I’d like to hand the call back over to our speakers for any additional or closing remarks.

Elke Gairdes, Head of Investor Relations, Signify: Ladies and gentlemen, thank you very much for joining our earnings call today. If you have any additional questions, please do not hesitate to contact Noel Liu or myself. Again, thank you very much, and enjoy the rest of your day.

Conference Operator: Thank you. This concludes today’s conference call. Thank you for your participation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.