Shares in lighting maker Signify gain 16% on first-quarter cash flow

By Toby Sterling

AMSTERDAM (Reuters) - Shares in Signify NV <LIGHT.AS> jumped on Friday after the world's largest maker of lights said it had increased cash flow even though sales and profits fell during the first quarter because of the coronavirus outbreak.

It said providing lighting, as an essential service, was not subject to lockdown restrictions in most countries, and the bulk of Signify's manufacturing and distribution lines remain open, although overall demand would remain under pressure.

Shares rose 16% on Friday to 17.29 euros by 1036 GMT. The stock is still down nearly 40% year to date, in line with a deep selloff because of the economic impact of the novel coronavirus.

"In the health sector ... doctors have to do their jobs, so light is seen in many places as essential, and when there's still a little bit of activity on the construction side, we're benefiting from it and we can deliver," CEO Eric Rondolat told Reuters on a call.

Net profit at Signify, the former lighting operations of Philips, was 27 million euros (23.59 million pounds), down from 44 million euros a year earlier. Sales fell 3.5% to 1.43 billion euros.

Signify's $1.4 billion purchase of U.S. professional lighting maker Cooper, announced last year, was consolidated in the company's results from March. 2

Although Signify's net debt increased to 1.81 billion euros by March 31 from 618 million euros on Dec. 31 to finance the acquisition, free cash flow in the quarter increased to 112 million euros from 55 million euros in the first quarter of 2019.

Rondolat said the company was operating at 80% of capacity globally, and it had acted swiftly to preserve cash through measures such as reduced advertising and delaying voluntary spending. Travel costs are also down.

However, he said the company expects demand to be hit further in the second quarter and withdrew previous financial guidance of a full-year improvement in the EBITA (earnings before interest tax and amortisation) margin.

ING analyst Marc Hesselink noted the company's earnings missed estimates, but said its profitability was holding up, which was more important.

"This update significantly reduces the ... balance sheet risk of Signify," he wrote in a note, adding the risk of a share issue was also lower.

Rondolat said the company had asked employees to voluntarily accept a 20% working time and pay reduction for the next three months, as executives also took a 20% salary cut for the second quarter. Rondolat said 85% of employees had agreed. Signify employed around 30,000 people at year-end.

Rondolat said the company will look to replace the bridge loan used to finance the Cooper acquisition, probably with a bond issue this year.

(Reporting by Toby Sterling; editing by Himani Sarkar and Barbara Lewis)