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Signify N.V.

Earnings Release Apr 30, 2021

3884_iss_2021-04-30_787e1fbe-6f04-4867-bcb6-ab005550933e.pdf

Earnings Release

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Press Release

April 30, 2021

Signify reports first quarter sales of EUR 1.6 billion, operational profitability of 10.8% and a free cash flow of EUR 168 million

First quarter 20211

  • Signify's installed base of connected light points increased from 77 million in Q4 20 to 83 million in Q1 21
  • Sales of EUR 1,599 million; 12.0% nominal sales growth and CSG of 3.2%
  • LED-based sales represented 82% of total sales (Q1 2020: 79%2 )
  • Adj. EBITA margin improved by 290 bps to 10.8%
  • Net income increased to EUR 60 million (Q1 20: EUR 27 million)
  • Free cash flow increased to EUR 168 million (Q1 20: EUR 112 million)
  • Net debt/EBITDA ratio of 1.4x (Q1 20: 2.7x)

Eindhoven, the Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced the company's first quarter 2021 results.

"Our first quarter performance demonstrates the execution of our strategy, as we report growth driven by our connected businesses and our growth platforms. The adaptive measures we took in 2020, combined with continued pricing discipline, cost and working capital management, resulted in improvements in our operating margin and free cash flow. Our teams have also begun to execute our new 'Brighter Lives, Better World 2025' sustainability program, which aims to double our positive impact on the environment and society in 2025," said CEO Eric Rondolat.

"While we see signs of an economic recovery, supply chain performance is being challenged by component shortages, which are impacting the first half, and will, to a lesser extent, impact the second half of the year. We expect the continued vaccination rollouts and easing of lockdowns to drive an upswing in demand for our professional portfolio in the second half of the year. We are therefore aiming for mid-single digit full-year comparable sales growth and further year-on-year operating margin improvements, driven by our digital businesses."

Brighter Lives, Better World 2025

In the first quarter of the year, Signify made its first steps to achieve the ambitious goals it set for the Brighter Lives, Better World 2025 sustainability program, making progress on all four commitments that contribute to doubling its positive impact on the environment and society. In addition, the CDP Awards 2021 recognized Signify's leadership in Climate action, after the company had achieved carbon neutrality for all its operations in the world in 2020.

In Q1 2021, the company has started to make progress against its ambition of doubling its positive impact on the environment and society in 2025:

  • Double the pace of the Paris agreement: Carbon reduction over value chain was 18 million tonnes, for which we set a 2025 target of 340 million tonnes
  • Double our Circular revenues to 32%: Circular revenues were 19%, versus the 2019 baseline of 16% and the 2025 target of 32%
  • Double our Brighter lives revenues to 32%: Brighter lives revenues were 23%, versus the 2019 baseline of 16% and the 2025 target of 32%
  • Double the percentage of women in leadership positions to 34%: The percentage of women in leadership positions was 24%, versus the 2019 baseline of 17% and the 2025 target of 34%

Outlook

Following the operational performance in the first quarter and based on current visibility, Signify now anticipates comparable sales growth of 3% to 6% for the full year 2021. In addition, Signify expects to achieve an Adjusted EBITA margin of 11.5% to 12.5% and continues to expect free cash flow to exceed 8% of sales for the full year 2021. The company reassesses its medium-term guidance for the period 2021-2023 after each financial year.

Signify has refinanced EUR 350 million of its long-term debt with short-term loans with a maturity of December 2021 and is therefore fully committed to repaying EUR 350 million of debt in Q4 2021.

Financial review

First quarter
in € million, except percentages 2020* 2021 change
Comparable sales growth 3.2 %
Effects of currency movements -6.4 %
Consolidation and other changes 15.2 %
Sales 1,427 1,599 12.0 %
Adjusted gross margin 545 637 16.9 %
Adj. gross margin (as % of sales) 38.2% 39.8%
Adj. SG&A expenses -393 -424
Adj. R&D expenses -67 -72
Adj. indirect costs -460 -496 -7.9 %
Adj. indirect costs (as % of sales) 32.2% 31.0%
Adjusted EBITA 112 172 53.3 %
Adjusted EBITA margin 7.9% 10.8%
Adjusted items -42 -57
EBITA 70 115 63.9 %
Income from operations (EBIT) 43 85 97.6 %
Net financial income/expense -10 -10
Income tax expense -6 -15
Net income 27 60 123.5 %
Free cash flow 112 168
Basic EPS (€) 0.24 0.47
Employees (FTE) 38,446 37,356

* For comparability purposes please note that first quarter 2020 includes only 1 month of Cooper Lighting performance

First quarter

Sales amounted to EUR 1,599 million, a nominal increase of 12.0%, including a 6.4% negative currency effect. After adjusting for a 15.2% change in consolidation and other changes (mainly related to the consolidation of Cooper Lighting in 2020), comparable sales increased by 3.2%. The return to growth was driven by strong sales in the connected home category, the recovery in China as well as an improved performance in most of Europe, India and the Middle East. LED-based sales accounted for 82% of total sales (Q1 2020: 79%1 ). The adjusted gross margin increased by 160 bps to 39.8%, largely driven by a positive mix effect from strong connected home sales, pricing discipline compensating the initial impact of material cost inflation, and the consolidation of Cooper Lighting. Adjusted indirect costs as percentage of sales decreased by 120 bps to 31.0%, supported by continued spending discipline and positive operating leverage. Adjusted EBITA amounted to EUR 172 million, representing a EUR 60 million increase versus the same period last year. The Adjusted EBITA margin improved by 290 bps to 10.8%, with gross margin and SG&A efficiency equally contributing to the improvement. Total restructuring costs of EUR 47 million mainly related to the restructuring of the central organization. Acquisition-related charges were EUR 14 million and incidental items generated a EUR 4 million benefit. As a result of the higher income from operations, net income improved from EUR 27 million to EUR 60 million compared to the first quarter of last year.

Digital Solutions

First quarter
in millions of EUR, unless otherwise indicated 2020* 2021 change
Comparable sales growth -1.8 %
Sales 639 793 24.1 %
Adjusted EBITA 43 71 66.9 %
Adjusted EBITA margin 6.7% 9.0%
EBITA 18 48
Income from operations (EBIT) -7 20

* For comparability purposes please note that first quarter 2020 includes only 1 months of Cooper Lighting performance

First quarter

Sales amounted to EUR 793 million, a nominal increase of 24.1%, reflecting the consolidation impact of Cooper Lighting. Comparable sales declined by 1.8%, on the back of continued lockdowns, component shortages, continued macroeconomic softness in the Americas, yet a strong performance in China, the Middle East and India, and a partial recovery across Europe. LED-based sales accounted for 92% of total sales including Cooper Lighting. Adjusted EBITA was EUR 71 million, resulting in an Adjusted EBITA margin expansion of 230 bps to 9.0%, mainly driven by continued cost management and the consolidation impact of Cooper Lighting.

Digital Products

First quarter
in millions of EUR, unless otherwise indicated 2020 2021 change
Comparable sales growth 15.7 %
Sales 529 575 8.7 %
Adjusted EBITA 47 82 73.1 %
Adjusted EBITA margin 8.9% 14.2%
EBITA 38 76
Income from operations (EBIT) 36 74

First quarter

Sales amounted to EUR 575 million, a nominal increase of 8.7%. On a comparable basis, sales improved by 15.7%, mainly driven by continued strong growth in the consumer segment for both the connected home and LED lamps and luminaires categories, partially offset by a lower recovery speed in the professional segment. Adjusted EBITA was EUR 82 million, resulting in an Adjusted EBITA margin of 14.2%, up from 8.9% in the first quarter of last year, mainly driven by the strong sales recovery, the resulting operating leverage, a solid gross margin and a higher contribution and improvement from connected home products.

Conventional Products

First quarter
in millions of EUR, unless otherwise indicated 2020 2021 change
Comparable sales growth -6.1 %
Sales 257 227 -11.7 %
Adjusted EBITA 45 47 3.3 %
Adjusted EBITA margin 17.6% 20.6%
EBITA 39 53
Income from operations (EBIT) 39 53

First quarter

Sales amounted to EUR 227 million, translating into a comparable decline of 6.1%, positively affected by continued strong traction in the consumer and horticulture segments. The Adjusted EBITA margin improved by 300 bps to 20.6%, driven by pricing discipline and operational efficiencies.

Other

First quarter

'Other' represents amounts not allocated to the operating segments and includes costs related both to central R&D activities to drive innovation and to group enabling functions. 'Other' Adjusted EBITA amounted to EUR -28 million (Q1 20: EUR -23 million). 'Other' EBITA amounted to EUR -62 million (Q1 20: EUR -25 million), which includes restructuring costs of EUR -34 million (Q1 20: EUR -2 million).

Sales by market

First quarter
in millions of EUR, except percentages 2020 2021 Change CSG
Europe 502 523 4.1 % 6.0 %
Americas 486 589 21.2 % -7.7 %
Rest of the World 325 370 13.8 % 22.9 %
Global businesses 115 118 3.0 % 1.7 %
Total 1,427 1,599 12.0 % 3.2 %

Americas includes Cooper Lighting and Global businesses includes Klite

Wiz Connected is included in Market Groups Europe, Americas and Rest of the World (was previously part of Global businesses)

First quarter

Comparable sales in Europe grew by 6.0%, as most markets saw a partial recovery despite ongoing COVID-19 related measures. In the Americas, comparable sales declined by 7.7% as most countries continued to face a challenging macroeconomic environment at the start of the first quarter, yet with a stronger performance in March. In the Rest of the World, China showed a strong recovery. Together with India and the Middle East, China benefited from a low comparison base.

Working capital

in millions of EUR, unless otherwise indicated 31 Mar, 2020 31 Dec, 2020 31 Mar, 2021
Inventories 1,019 885 946
Trade and other receivables 1,173 1,140 1,074
Trade and other payables -1,673 -1,731 -1,784
Other working capital items -49 19 -1
Working capital 470 313 236
As % of LTM* sales 7.6 % 4.8 % 3.5 %

* LTM: Last Twelve Months

First quarter

Working capital improved by EUR 234 million year on year to EUR 236 million, driven by higher payables, lower receivables and lower inventories. As a percentage of sales, working capital improved by 410 bps to 3.5% of sales. When including last twelve-month sales pro-forma Cooper Lighting and Klite, working capital improved by 260 bps.

Cash flow analysis

First quarter
in millions of EUR 2020 2021
Income from operations (EBIT) 43 85
Depreciation and amortization 78 77
Additions to (releases of) provisions 33 60
Utilizations of provisions -52 -50
Change in working capital 52 30
Net interest and financing costs paid -10 -1
Income taxes paid -28 -21
Net capex -17 -16
Other 12 3
Free cash flow 112 168

First quarter

Free cash flow increased by EUR 56 million to EUR 168 million, as a result of higher income from operations, partly offset by a lower albeit continued inflow from working capital improvement. Free cash flow included a restructuring payout of EUR 13 million (Q1 20: EUR 18 million).

Net debt and total equity

in millions of EUR 31 Mar,2020
31 Dec, 2020
31 Mar, 2021
Short-term debt 95 86 433
Long-term debt 2,639 2,221 1,899
Gross debt 2,734 2,307 2,332
Cash and cash equivalents 924 1,033 1,192
Net debt 1,810 1,275 1,141
Total equity 2,334 2,321 2,469

First quarter

Our cash position increased by EUR 159 million to EUR 1,192 million compared with the end of December 2020. EUR 350 million of long-term debt was converted into short-term debt during Q1 2021. Net debt amounted to EUR 1,141 million, a decrease of EUR 134 million compared with the end of December 2020. Net leverage

reduced from 2.7x at the end of March 2020, following the acquisition of Cooper Lighting, to 1.4x by the end of March 2021, which is in line with our deleveraging strategy. Total equity increased to EUR 2,469 million at the end of the first quarter (Q4 20: EUR 2,321 million), primarily due to currency translation and net income offset by share repurchases to cover obligations arising from long-term employee share plans.

Other information

Appendix A – Selection of financial statements Appendix B – Reconciliation of non-IFRS financial measures Appendix C – Financial Glossary

Conference call and audio webcast

Eric Rondolat (CEO) and Javier van Engelen (CFO) will host a conference call for analysts and institutional investors at 9:00 a.m. CET to discuss the 2021 first quarter results. A live audio webcast of the conference call will be available via the Investor Relations website.

Financial calendar 2021

May 18, 2021 Annual General Meeting
May 20, 2021 Ex-dividend date
May 21, 2021 Dividend record date
June 1, 2021 Dividend payment date
July 23, 2021 Second quarter results 2021
October 29, 2021 Third quarter results 2021

For further information, please contact: Signify Investor Relations Thelke Gerdes Tel: +31 6 1801 7131 E-mail: [email protected]

Signify Corporate Communications

Elco van Groningen Tel: +31 6 1086 5519 E-mail: [email protected]

About Signify

Signify (Euronext: LIGHT) is the world leader in lighting for professionals and consumers and lighting for the Internet of Things. Our Philips products, Interact connected lighting systems and data-enabled services, deliver business value and transform life in homes, buildings and public spaces. With 2020 sales of EUR 6.5 billion, we have approximately 37,000 employees and are present in over 70 countries. We unlock the extraordinary potential of light for brighter lives and a better world. We achieved carbon neutrality in 2020, have been in the Dow Jones Sustainability World Index since our IPO for four consecutive years and were named Industry Leader in 2017, 2018 and 2019. News from Signify is located at the Newsroom, Twitter, LinkedIn and Instagram. Information for investors can be found on the Investor Relations page.

Important Information

Forward-Looking Statements and Risks & Uncertainties

This document and the related oral presentation contain, and responses to questions following the presentation may contain, forward-looking statements that reflect the intentions, beliefs or current expectations and projections of Signify N.V. (the "Company", and together with its subsidiaries, the "Group"), including statements regarding strategy, estimates of sales growth and future operational results.

By their nature, these statements involve risks and uncertainties facing the Company and its Group companies, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement as a result of risks and uncertainties. Such risks, uncertainties and other important factors include but are not limited to: adverse economic and political developments, the impacts of COVID-19, rapid technological change, competition in the general lighting market, development of lighting systems and services, successful implementation of business transformation programs, impact of acquisitions and other transactions, reputational and adverse effects on business due to activities in Environment, Health & Safety, compliance risks, ability to attract and retain talented personnel, adverse currency effects, pension liabilities, and exposure to international tax laws. Please see "Risk Factors and Risk Management" in Chapter 12 of the Annual Report 2020 for discussion of material risks, uncertainties and other important factors which may have a material adverse effect on the business, results of operations, financial condition and prospects of the Group. Such risks, uncertainties and other important factors should be read in conjunction with the information included in the Company's Annual Report 2020.

Additional risks currently not known to the Group or that the Group has not considered material as of the date of this document could also prove to be important and may have a material adverse effect on the business, results of operations, financial condition and prospects of the Group or could cause the forward-looking events discussed in this document not to occur. The Group undertakes no duty to and will not necessarily update any of the forward-looking statements in light of new information or future events, except to the extent required by applicable law.

Market and Industry Information

All references to market share, market data, industry statistics and industry forecasts in this document consist of estimates compiled by industry professionals, competitors, organizations or analysts, of publicly available information or of the Group's own assessment of its sales and markets. Rankings are based on sales unless otherwise stated.

Non-IFRS Financial Measures

Certain parts of this document contain non-IFRS financial measures and ratios, such as comparable sales growth, adjusted gross margin, EBITA, adjusted EBITA, and free cash flow, and other related ratios, which are not recognized measures of financial performance or liquidity under IFRS. The non-IFRS financial measures presented are measures used by management to monitor the underlying performance of the Group's business and operations and, accordingly, they have not been audited or reviewed. Not all companies calculate non-IFRS financial measures in the same manner or on a consistent basis and these measures and ratios may not be comparable to measures used by other companies under the same or similar names. A reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures is contained in this document. For further information on non-IFRS financial measures, see "Chapter 18 Reconciliation of non-IFRS measures" in the Annual Report 2020.

Change in reporting segments

Effective Q2 2020, to further adapt to the industry transition and strengthen customer centricity, Signify changed the organizational structure, which included changing the previously four business groups (BG's) to three divisions. Division Digital Solutions (formerly BG Professional, including Cooper Lighting Solutions) offers luminaires, lighting systems and services for the Internet of Things to the customers in the professional segment; Division Digital Products (combines BG LED and BG Home). This division offers LED lamps, LED luminaires and connected products, including Hue and Wiz, and LED electronics to professional customers, OEM partners and consumers. By bringing together its entire consumer LED portfolio, Signify can better manage this lighting category for its channel partners; and Division Conventional Products (formerly BG Lamps) continues to focus on

conventional lamps and electronics for professional customers, OEM partners and consumers. It is organized separately to bring a clear distinction between conventional and digital offerings.

In line with this change, effective Q2 2020, Signify's operating segments are Digital Solutions, Digital Products, and Conventional Products. The segments are organized based on the nature of the products and services. 'Other' represents amounts not allocated to the operating segments and includes certain costs related to central R&D activities to drive innovation as well as group enabling functions.

Presentation

All amounts are in millions of euros unless otherwise stated. Due to rounding, amounts may not add up to totals provided. All reported data are unaudited. Unless otherwise indicated, financial information has been prepared in accordance with the accounting policies as stated in the Annual Report 2020.

Market Abuse Regulation

This press release contains information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

Appendix A – Financial statement information

A. Condensed consolidated statement of income

In millions of EUR unless otherwise stated

First quarter
2020 2021
Sales 1,427 1,599
Cost of sales (895) (970)
Gross margin 533 629
Selling, general and administrative expenses (422) (484)
Research and development expenses (68) (71)
Other business income 2 13
Other business expenses (1) (2)
Income from operations 43 85
Financial income 5 5
Financial expenses (15) (15)
Results relating to investments in associates
Income before taxes 33 75
Income tax expense (6) (15)
Net income 27 60
Attribution of net income for the period:
Net income (loss) attributable to shareholders of Signify N.V. 30 59
Net income (loss) attributable to non-controlling interests (3) 1

B. Condensed consolidated statement of comprehensive income

In millions of EUR

First quarter
2020 2021
Net income (loss) 27 60
Pensions and other post-employment plans:
Remeasurements
Income tax effect on remeasurements
Total of items that will not be reclassified to profit or loss
Currency translation differences:
Net current period change, before tax (31) 147
Income tax effect
Net investment hedge
Net current period change, before tax (20)
Income tax effect
Cash flow hedges:
Net current period change, before tax 14 (18)
Income tax effect (3) 4
Total of items that are or may be reclassified to profit or loss (20) 113
Other comprehensive income (loss) (20) 113
Total comprehensive income (loss) 6 173
Total comprehensive income (loss) attributable to:
Shareholders of Signify N.V. 9 166
Non-controlling interests (3) 7

C. Condensed consolidated statement of financial position

In millions of EUR
December 31,
2020 March 31, 2021
Non-current assets
Property, plant and equipment 708 720
Goodwill 2,251 2,357
Intangible assets, other than goodwill 775 776
Investments in associates 12 12
Financial assets 55 49
Deferred tax assets 473 471
Other assets 60 70
Total non-current assets 4,334 4,455
Current assets
Inventories 885 946
Financial assets
Other assets 171 209
Derivative financial assets 104 63
Income tax receivable 39 50
Trade and other receivables 1,140 1,074
Cash and cash equivalents 1,033 1,192
Assets classified as held for sale 3
Total current assets 3,376 3,534
Total assets 7,710 7,989
Equity
Shareholders' equity 2,196 2,338
Non-controlling interests 124 131
Total equity 2,321 2,469
Non-current liabilities
Debt 2,221 1,899
Post-employment benefits 390 390
Provisions 224 229
Deferred tax liabilities 22 24
Income tax payable 108 111
Other liabilities 159 175
Total non-current liabilities 3,123 2,828
Current liabilities
Debt, including bank overdrafts 86 433
Derivative financial liabilities 44 37
Income tax payable 20 13
Trade and other payables 1,731 1,784
Provisions 172 189
Other liabilities 213 236
Liabilities from assets classified as held for sale
Total current liabilities 2,266 2,692
Total liabilities and total equity 7,710 7,989

D. Condensed consolidated statement of cash flows

In millions of EUR

First quarter
2020 2021
Cash flows from operating activities
Net income (loss) 27 60
Adjustments to reconcile net income (loss) to net cash provided by operating
activities: 133 156
• Depreciation, amortization and impairment of non-financial assets 78 77
• Impairment (reversal) of goodwill, other non-current financial assets and
investments in associates
• Net gain on sale of assets (11)
• Net interest expense on debt, borrowings and other liabilities 7 7
• Income tax expense 6 15
• Additions to (releases of) provisions 28 56
• Additions to (releases of) post-employment benefits 5 4
• Other items 8 8
Decrease (increase) in working capital: 52 30
• Decrease (increase) in trade and other receivables 220 84
• Decrease (increase) in inventories (9) (35)
• Increase (decrease) in trade and other payables (185) (8)
• Increase (decrease) in other current assets and liabilities 26 (10)
Increase (decrease) in other non-current assets and liabilities 7 9
Utilizations of provisions (43) (42)
Utilizations of post-employment benefits (9) (8)
Net interest and financing costs paid (10) (1)
Income taxes paid (28) (21)
Net cash provided by (used for) operating activities 129 184
Cash flows from investing activities
Net capital expenditures: (17) (16)
• Additions of intangible assets (5) (8)
• Capital expenditures on property, plant and equipment (12) (21)
• Proceeds from disposal of property, plant and equipment 13
Net proceeds from (cash used for) derivatives and other financial assets 10 (5)
Purchases of businesses, net of cash acquired (1,270)
Proceeds from sale of businesses, net of cash disposed of
Net cash provided by (used for) investing activities (1,277) (21)
Cash flows from financing activities
Dividend paid (3)
Proceeds from issuance of debt 2,455 350
Repayment of debt (1,218) (371)
Purchase of treasury shares (6) (24)
Net cash provided by (used for) financing activities 1,231 (48)
Net cash flows 84 115
Effect of changes in exchange rates on cash and cash equivalents and bank overdrafts (5) 46
Cash and cash equivalents and bank overdrafts at the beginning of the period1 840 1,030
Cash and cash equivalents and bank overdrafts at the end of the period2 919 1,191

1 For Q1 2021 and Q1 2020, included bank overdrafts of EUR 3 million and EUR 7 million, respectively.

2 Included bank overdrafts of EUR 1 million and EUR 5 million as at March 31, 2021 and 2020, respectively.

Appendix B - Reconciliation of non-IFRS financial measures

Change in reporting segments

As indicated in the Important Information section, Signify changed its segment reporting in Q2 2020. The main change relates to combining BG LED and BG Home into division Digital Products. The comparatives 2020 in below tables have been updated to reflect the updated segment structure.

Sales growth composition per business in %

First quarter
Comparable
growth
Currency effects Consolidation and
other changes
Nominal growth
2021 vs 2020
Digital Solutions -1.8 -6.6 32.6 24.1
Digital Products 15.7 -6.4 -0.6 8.7
Conventional Products -6.1 -5.5 -0.1 -11.7
Total 3.2 -6.4 15.2 12.0

Sales growth composition per market in %

First quarter
Comparable
growth
Currency effects Consolidation and
other changes
Nominal growth
2021 vs 2020
Europe 6.0 -1.6 -0.3 4.1
Americas -7.7 -9.0 37.8 21.2
Rest of the World 22.9 -9.5 0.4 13.8
Global businesses 1.7 -2.7 4.0 3.0
Total 3.2 -6.4 15.2 12.0

Adjusted EBITA to Income from operations (or EBIT) in millions of EUR

Digital Digital Conventional
Signify Solutions Products Products Other
First quarter 2021
Adjusted EBITA 172 71 82 47 (28)
Restructuring (47) (7) (3) (2) (34)
Acquisition-related charges (14) (14)
Incidental items 4 (2) (2) 9
EBITA 115 48 76 53 (62)
Amortization1 (30) (28) (2) 0
Income from operations (or EBIT) 85 20 74 53 (62)
First quarter 2020
Adjusted EBITA 112 43 47 45 (23)
Restructuring (13) (4) (4) (3) (2)
Acquisition-related charges (18) (16) (2)
Incidental items (11) (4) (4) (3)
EBITA 70 18 38 39 (25)
Amortization1 (27) (25) (2)
Income from operations (or EBIT) 43 (7) 36 39 (25)

1 Amortization and impairments of acquisition related intangible assets and goodwill.

First quarter 2021 Income from operations to Adjusted EBITA in millions of EUR

Acquisition
related
Incidental
Reported Restructuring charges items1 Adjusted
First quarter 2021
Sales 1,599 1,599
Cost of sales (970) 5 2 (962)
Gross margin 629 5 2 637
Selling, general and administrative expenses (484) 43 12 5 (424)
Research and development expenses (71) (1) (72)
Indirect costs (555) 42 12 5 (496)
Impairment of goodwill
Other business income 13 (9) 4
Other business expenses (2) (2)
Income from operations 85 47 14 (4) 142
Amortization (30) (30)
Income from operations excluding
amortization (EBITA) 115 47 14 (4) 172
First quarter 2020
Sales 1,427 1,427
Cost of sales (895) 4 7 2 (882)
Gross margin 533 4 7 2 545
Selling, general and administrative expenses (422) 8 12 10 (393)
Research and development expenses (68) 1 (67)
Indirect costs (490) 9 12 10 (460)
Impairment of goodwill
Other business income 2 2
Other business expenses (1) (1)
Income from operations 43 13 18 11 85
Amortization (27) (27)
Income from operations excluding
amortization (EBITA) 70 13 18 11 112

1 Incidental items are non-recurring by nature and relate to separation, transformation, net real estate gains, environmental provision for inactive sites and discounting effect of long-term provisions.

Appendix C – Financial glossary

Acquisition-related charges

Costs that are directly triggered by the acquisition of a company, such as transaction costs, purchase accounting related costs and integration-related expenses.

Adjusted EBITA

EBITA excluding restructuring costs, acquisitionrelated charges and other incidental charges.

Adjusted EBITA margin

Adjusted EBITA divided by sales to third parties (excluding intersegment).

Adjusted gross margin

Gross margin, excluding restructuring costs, acquisition-related charges and other incidental items attributable to cost of sales.

Adjusted indirect costs

Indirect costs, excluding restructuring costs, acquisition-related charges and other incidental items attributable to indirect costs.

Adjusted R&D expenses

Research and development expenses, excluding restructuring costs, acquisition-related charges and other incidental items attributable to research and development expenses.

Adjusted SG&A expenses

Selling, general and administrative expenses, excluding restructuring costs, acquisition-related charges and other incidental items attributable to selling, general and administrative expenses.

Changes in scope

Consolidation effects related to acquisitions (mainly Cooper Lighting).

Comparable sales growth (CSG)

The period-on-period growth in sales excluding the effects of currency movements and changes in consolidation and other changes.

EBIT

Income from operations.

EBITA

Income from operations excluding amortization and impairment of acquisition related intangible assets and goodwill.

EBITDA

Income from operations excluding depreciation, amortization and impairment of non-financial assets.

Effects of changes in consolidation and other changes

In the event a business is acquired (or divested), the impact of the consolidation (or deconsolidation) on the Group's figures is included (or excluded) in the calculation of the comparable sales growth figures. Other changes include regulatory changes and changes originating from new accounting standards.

Effects of currency movements

Calculated by translating the foreign currency financials of the previous period and the current period into euros at the same average exchange rates.

Employees

Employees of Signify at period end expressed on a full-time equivalent (FTE) basis.

Free cash flow

Net cash provided by operating activities minus net capital expenditures. Free cash flow includes interest paid and income taxes paid.

Gross margin

Sales minus cost of sales.

Incidental charges

Any item with an income statement impact (loss or gain) that is deemed to be both significant and not part of normal business activity. Other incidental items may extend over several quarters within the same financial year.

Indirect costs

The sum of selling, general and administrative expenses and R&D expenses.

Net capital expenditures

Additions of intangible assets, capital expenditures on property, plant and equipment and proceeds from disposal of property, plant and equipment.

Net debt

Short-term debt, long-term debt minus cash and cash equivalents.

Net leverage ratio

The ratio of consolidated reported net debt to consolidated reported EBITDA for the purpose of calculating the financial covenant.

R&D expenses

Research and development expenses.

Restructuring costs

The estimated costs of initiated reorganizations, the most significant of which have been approved by the group, and which generally involve the realignment of certain parts of the industrial and commercial organization.

SG&A expenses

Selling, general and administrative expenses.

Working capital

The sum of inventories, trade and other receivables, other current assets, derivative financial assets minus the sum of trade and other payables, derivative financial liabilities and other current liabilities.

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