January 31, 2020 / 11:35 AM / in 24 days

UPDATE 1-Lighting maker Signify's Q4 core profit rises; China impact uncertain

(Updates with CEO quotes on China, analyst comment, share move.)

By Toby Sterling

AMSTERDAM, Jan 31 (Reuters) - Signify, the world’s largest maker of lights, on Friday reported higher fourth-quarter core earnings and said it expected to improve margins in 2020 despite “challenging market conditions”.

CEO Eric Rondolat, who has led the company since its spin-off from Philips in a 2016 initial public offering, said it was too early to say what impact the coronavirus outbreak centred in China would have on the company’s business.

China is Signify’s second largest market and it also has major production capacity in the country, particularly for LED lights.

“It’s not only people going back to the factories, it’s also the factories getting authorisation from the Chinese government to resume production,” he said in a telephone interview.

He said none of the company’s 7,800 Chinese employees had been infected with the virus.

Signify earlier reported adjusted earnings before interest, taxes and amortisation (EBITA) of 232 million euros ($257 million) for the 3 months ended Dec. 31, up from 214 million euros in the same quarter of 2018 and compared to a forecast of 190 million euros in a company-compiled poll of analysts. Sales rose 1.4% to 1.75 billion euros, helped by currency effects.

The company’s shares were 4.2% higher at 29.33 euros by 1006 GMT.

MIXED RESULTS

Analyst Marc Hesselink of ING Research said that while professional lighting sales and LED sales were weaker than expected in the fourth quarter, home lighting systems were much better than expected.

“Overall we believe that the mixed update tilts to the positive side because of a strong free cash flow, 14% better than (analysts’) consensus.”

Signify said that while segments of the lighting market had grown in 2019, including for horticulture and networked lights, the market as a whole contracted, notably in the Americas.

Fourth quarter sales in the region, which is dominated by the United States and Canada, fell by 6.8% to 452 million euros.

Rondolat said the home division’s success was due to a variety of products, notably bluetooth networked lights, the growing popularity of antique-style LED lights, and lights for home entertainment systems.

He said the company could not issue a sales forecast due to uncertainties surrounding trade and the ongoing decline of its incandescent lightbulb business, which is the largest remaining manufacturer of the traditional bulbs.

He said while the company was a long-time investor in areas such as agricultural and solar lighting, and consumer and profession systems, a much more dynamic world economy was needed for sales of those products to reach a sufficient level to impact turnover.

However, he added that he believed Signify had a superior product offering and growth profile compared to competitors.

The company said it expected to improve its adjusted EBITA margin in 2020 from the 10.4% reached in 2019.

$1 = 0.9014 euros Reporting by Toby Sterling; editing by David Evans, Kirsten Donovan

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