Signify's (AMS:LIGHT) Earnings: More Than Just the Bottom Line

Signify (AMS:LIGHT) has been making waves in the lighting industry, and its recent earnings report is a testament to its resilience and growth potential. As investors, we often focus on statutory profits, but there's more to Signify's earnings story than just the bottom line. Let's dive into the key factors driving Signify's earnings growth and the opportunities that lie ahead.

1. Growth in LED-based Sales: Signify's LED-based sales have been on an upward trajectory, representing 93% of total sales in 2024, up from 85% in 2023. This growth is driven by the increasing demand for energy-efficient and connected LED lighting solutions. As the market for LED lighting continues to grow, this factor is likely to remain sustainable in the long term.
2. Expansion of Connected Lighting Business: Signify's installed base of connected light points increased to 144 million at the end of 2024, up from 124 million in 2023. This growth is driven by the increasing adoption of smart lighting solutions and the Internet of Things (IoT) in both residential and commercial settings. As smart city initiatives, smart home technologies, and iot continue to grow, this factor is expected to remain sustainable in the long term.
3. Cost Reduction Programs: Signify implemented a cost reduction program in 2024, achieving savings of €131 million. This program helped the company maintain profitability despite headwinds in certain markets. As the company continues to focus on cost management and operational efficiency, this factor is likely to remain sustainable in the long term.
4. Strong Free Cash Flow Generation: Signify generated a strong free cash flow of 7.1% of sales in 2024, up from 6.7% in 2023. This is a result of the company's focus on cash flow management and operational efficiency. As the company continues to generate strong free cash flows, this factor is expected to remain sustainable in the long term.



Signify's earnings performance compares favorably to its peers in the lighting industry. While the company faced headwinds in China and the Professional business in Europe, its full-year 2024 sales were EUR 6,143 million, with a comparable sales growth (CSG) of -6.6%. In contrast, the global smart lighting market is expected to grow at a CAGR of 19.3% from 2025 to 2034. Signify's adjusted EBITA margin for 2024 was 9.9%, which is in line with its peers. However, the company's gross margin was strong, confirming its improving operational performance. In Q4 2024, Signify's adjusted EBITA margin was 12.4%, an increase of 30 basis points year-over-year.

Opportunities for Signify to gain market share or improve its competitive position include:

1. Growth in Connected Lighting: Signify's installed base of connected light points increased to 144 million at the end of 2024, up from 124 million in 2023. This growth in connected lighting solutions can help the company gain market share, as the global smart lighting market is expected to grow significantly.
2. Cost Reduction and Efficiency: Signify can further leverage its cost reduction program to improve its competitive position by maintaining profitability despite market headwinds.
3. Innovation and Technology: Signify can focus on developing AI-driven lighting solutions and IoT-enabled wireless control systems to differentiate its product offering and attract new customers. The company's Brighter Lives, Better World 2025 sustainability program also provides an opportunity to innovate and improve its competitive position.
4. Strategic Acquisitions: While Signify has no major M&A deals planned currently, the company regularly reviews M&A opportunities. Strategic bolt-on acquisitions can help Signify expand its product portfolio and gain market share.

In conclusion, Signify's earnings performance is more than just statutory profits. The company's growth in LED-based sales, expansion of connected lighting business, cost reduction programs, and strong free cash flow generation are key factors driving its earnings growth. As the global smart lighting market continues to grow, Signify is well-positioned to gain market share and improve its competitive position. Investors should consider Signify as a strong contender in the lighting industry, with a promising future ahead.