Ladies and gentlemen, welcome to the Signify third quarter results 2020. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Please note that you are limited to one question and a follow-up per round. I would now like to give the floor to Rogier Dierckx. Please go ahead, sir.
Good morning, everyone, and welcome to the Signify earnings call for the third quarter results 2020. With me are Eric Rondolat, CEO of Signify, and René van Schooten, CFO. Javier van Engelen, who has been appointed as our new CFO and who will take over from René van Schooten after the extraordinary general meeting this week or next week, is also joining us today. In a moment, Eric will take you through the third quarter business and operational performance. René will then tell you more about the financial performance in the third quarter.
Eric will end today's presentation with the outlook. After that, we will be happy to answer your questions. Our press release and the related slide deck were published at 7:00 A.M. CET this morning. Both documents are now available for download from our investor relations website. A full transcript of this conference call will be made available as soon as possible on our investor relations website. With that, I will now hand over to Eric.
Thank you, Rogier. Good morning, everyone, and thank you for joining us today. Let's go to slide four with the main elements of our performance in the third quarter. The install base of connected light points increased from 64 million in Q2 2020 to 71 million in the third quarter of this year. Total sales increased by 12.1% to EUR 1.7 billion or - 8.3% on a comparable basis. Our connected businesses and consumer business performed better than our professional business. LED-based sales represented 82% of total sales compared with 81% last year on a pro forma basis, including Cooper Lighting and Klite Lighting.
We continued to make good progress on reducing our cost base by EUR 22 million, a reduction of 4.9%. Our adjusted EBITA margin increased by 50 basis points to 11.5%, including a negative currency impact of 30 basis points. This was mainly driven by a strong gross margin improvement, supported by rigorous pricing management. Our net income increased from EUR 74 million last year to EUR 90 million this quarter, mainly as a result of improved operational profitability.
Our free cash flow of EUR 214 million reflects solid profitability improvements, strong working capital management, and the consolidation of Klite and Cooper Lighting. Last but not least, steady progress has been made on the integration of Cooper Lighting and also Klite . I propose now that we move to slide number five, where you can see a snapshot of the financial performance of our growing profit engines, digital solutions and digital products. Comparable sales growth of the growing profit engine declined by 7.9% due to measures taken against the spread of COVID-19.
Despite the decline in top line, the growing profit engine have improved the adjusted EBITA margin by 130 basis points to 12.3%. Digital products improved its profitability by 370 basis points, while the adjusted EBITA margin of digital solutions remained stable year-over-year when including the pro forma Cooper Lighting financials in Q3 of 2019. Let me now provide you with more details for each of the divisions, starting on slide six with digital solutions. Nominal sales increased by 31.2% as a result of the consolidation of Cooper Lighting.
Comparable sales declined by 11.2% and reflects a continued difficult market environment, albeit an improved trend compared with Q2 2020. The most severely impacted markets were Latin America, Canada, India, Southeast Asia, Italy, and France. LED-based sales accounting for 92% of total sales. Connected sales are representing 27% of total sales, excluding Cooper Lighting. The adjusted EBITA margin on 11% remains stable year-on-year. We're including the pro forma Cooper Lighting financials in Q3 2019.
On the next slide number seven, you can see some of the business highlights of this quarter for digital solutions. The first highlight I would like to mention illustrates our commitment to climate action as we switch to LED 1,300 luminaires in the Port of Antwerp, reducing energy usage by 30% while receiving a higher light output than before. This higher light output, in turn, speaks to our commitment to safety and security, as drivers in the Port of Antwerp will have a better view on the roads. The luminaires are connected to Interact City, driving further operational efficiencies and enabling the measurement of motion, traffic, and also noise.
The partnership with the football club of RB Leipzig is very interesting as it includes the implementation of Interact Sports for the pitch, the mixed zone, the hospitality areas, and Interact Landmark for the façade. We also equipped the club's home of esports with our Philips Hue smart lighting to enhance the experience of visitors. This project also illustrates our focus on health and wellbeing, as we will be installing our UVC disinfection upper air in the commercial buildings, the stadiums, and the dressing rooms of the teams.
Lastly, we're planning to install Trulifi by Signify in the press room to ensure journalists and photographers can upload their articles and photos fast and secure, further underlining our commitment to safety and security. We also made progress on strategic partnership. First of all, to support food availability by joining forces with ScaleAQ, we can accelerate the switch to sustainable fish farming across the world. Another partnership supports safety and security as together with EDZCOM, we can accelerate the adoption of LiFi by manufacturing companies in Europe.
Let's move on now to digital products on slide number eight. Nominal sales increased by 1.9% to EUR 575 million. Comparable sales declined by 2%, sales in the consumer channel showed a strong performance. Connected base sales representing 21% and sell-out rates in connected home remained robust. Demand in the OEM and professional channels continued to be impacted by the COVID-19 situation. The most severely impacted markets were Canada, India, Southeast Asia, and Indonesia.
The adjusted EBITA margin improved by 370 basis points, driven by positive mix impact from the connected home business, solid price management, continued COGS savings, and the ongoing successful integration of Klite. There are a couple of business highlights that we would like to bring to your attention, and that's on the next slide. This is slide number nine. Illustrating our focus on health and wellbeing, we now launched the UVC Disinfection Consumer Desk Lamp to help disinfect viruses and bacteria from homes in different countries in Asia and the Middle East.
The lamp are equipped with voice guidance and a built-in sensor that shuts off the device when detecting movement to provide for an extra layer of protection. While the initial launch has taken place in the countries you see on the slide, we're also looking at the introduction in other geographies. We have also made further progress in smart lighting for consumers by introducing the new Philips Hue Play gradient lightstrip to provide TV viewers with an even more immersive viewing experience than before.
The lightstrip is specifically designed for this purpose and can be mounted behind any TV with included brackets for easy installation and an optimal design 45-degree light projection. It is also the first lightstrip that is pixelated, meaning that consumers can produce an almost unlimited combination of colors on one lightstrip that can seamlessly blend together and provide more nuance than ever before. We have also launched 100 new WiZ products in four continents that combine Bluetooth and Wi-Fi technology, further expanding our share in the smart lighting market.
These products include a smart plug, a sensor, a remote, and a wide range of bulbs and spot in different color ranges. Let's now turn to slide number 10 to discuss the performance of conventional products. Comparable sales decreased by 11%. The business declined less than in previous quarters as we benefited from strong demand for consumer lamps, UVC lamps, and horticulture lighting. We believe that the decline in sales is lower than the market decline, resulting in continued market share gains. At the same time, conventional products continue to generate a solid free cash flow.
On the next slide 11, I would like to give you an update on the good progress we made on our sustainability targets. In the first nine months of 2020, sustainable revenues represented 83.6% of the total revenues, exceeding our 2020 target of 80%. We sold 2.7 billion LED lamps and luminaires in the period from 2015 till the first nine months of 2020, well ahead of our commitment to deliver more than 2 billion LED lamps and luminaires by the end of this year. We are very pleased that we have achieved carbon neutrality, already in September, ahead of our objective.
We have also decreased our waste to landfill by 92% compared with last year, and we are ahead of our targets related to a safe and healthy workspace and a sustainable supply chain. While we are progressing towards our commitments for 2020, we will already embark on a new five-year journey in which we'll focus on doubling our positive impact on the environment and also on society. That's what I wanted to exchange with you. I will now hand over to René, who will tell us more about the financial performance for this third quarter of 2020.
Thank you, Eric. Let's go to slide 13, where you see the adjusted EBITA bridge. The adjusted gross margin as a percentage of sales increased by 200 basis points in Q3 2020, including a currency effect of - 10 basis points. This improvement is mainly a result of continued strong pricing management and ongoing bill of material savings. Pricing was well managed across the divisions. Price erosion in LED lamps and electronics continues to slow down, while we have been able to selectively increase prices on parts of our portfolio.
Our indirect cost base decreased by EUR 22 million compared to Q3 2019, when excluding the impacts of forex and changes in scope as a result of the acquisitions of Cooper Lighting and Klite . If we look at Signify's adjusted EBITDA margin performance, excluding the acquisitions of Cooper in Q3 2020, we will still have an improvement in the adjusted EBITDA margin year-over-year. The overall forex impact on the adjusted EBITDA margin was EUR -10 million. Scope and other includes the effects of Cooper Lighting and Klite Lighting acquisitions.
Let's now go to slide 14. You can see the quarterly development of our indirect cost base. We continue to make solid progress on reducing our indirect costs. At a very early stage of the COVID-19 outbreak, a broad range of mitigation actions were identified to preserve profitability. Furthermore, we benefited from the carry-over effect from the many initiatives that we have implemented last year, and in the first half of this year. As said, this has resulted in indirect cost savings of EUR 22 million in Q3, excluding the effect of currencies and changes in scope.
We had a positive currency impact of EUR 12 million. Hence, our adjusted indirect costs were EUR 408 million, excluding the scope additions. By adding EUR 112 million coming from scope effects related to the Cooper Lighting and Klite Lighting acquisitions, we ended with the total adjusted indirect cost of EUR 520 million. We continue to work on initiatives that will further decrease the indirect cost base. We will stay on top what's happening around us and adapt our cost base as soon as we see things changing. Let's now look at working capital in the third quarter of 2020 on the next slide 15.
When we include sales of Cooper Lighting and Klite Lighting on a 12-month pro forma basis, working capital decreased by 300 basis points to 6.4% of sales in Q3 2020. The improvement was mainly driven by agile inventory management and active monitoring of receivables and payables. Inventories as percentage of sales reduced 210 basis points to 14.4%, when including the sales of Cooper Lighting and Klite Lighting on a 12-month pro forma basis. Let's now take a closer look at our net debt position on the following slide 16.
Following the debt repayment of EUR 350 million to reduce our overall gross debt position, our cash position decreased by EUR 264 million to EUR 762 million at the end of Q3 2020. Net debt decreased EUR 170 million. Next to the profit we generated in the quarter and the change in working capital I just mentioned, you can see the other items in the bridge that impacted cash and thus our net debt position. Net CapEx was EUR 26 million in the quarter. Next to that, we paid EUR 27 million for tax and interest. Other include cash used for derivatives, acquisitions, new lease liabilities, and foreign exchange effect on cash equivalent and debt. In addition, we repurchased shares for a total consideration of EUR 32 million to cover obligations arising from long-term incentive performance share plans and other employee share plans. All in all, our net debt position amounted to EUR 1,589 million at the end of Q3. This has resulted in a reduction of our net leverage ratio from 2.4 at the end of June to 2.2 at the end of September.
Before I hand over to Eric, I would like to inform you about our foreign exchange outlook. Based on the prevailing spot rates at the end of September 2020, the currency impact on the adjusted EBITDA margin for Q4 2020 is expected to be minus 10 basis points and around - 30 basis points for the full year. Let me now hand back to Eric for the final part of this presentation.
Thank you, René. Let me now go to the final slide of the presentation, which is slide 21, and to discuss the outlook. Given the uncertainty brought by the rising number of COVID-19 cases, Signify does not provide financial guidance for the full year 2020. We remain confident in the underlying resilience of our business and operating model, and that our liquidity needs are well covered by the financial framework we have in place. During the virtual Capital Markets Day 2020, which is scheduled to take place on December 9th, Signify will provide more details on its expectations for the medium term.
With that, I would like to open the call for questions, which René and I are going to be very happy to answer.
Thank you. Ladies and gentlemen, we are now ready to take your questions. If you wish to ask a question, please press zero one on your telephone keypad. That's zero one on your telephone keypad to ask a question. Please remember that you are limited to one question and a follow-up per round. Let's wait for the first question. Our first question comes from the line of Martin Wilkie of Citi. Please go ahead. Your line is now open.
Thanks. Good morning. It's Martin from Citi. A question really around how you're seeing the business process normalize, and obviously we've seen pent-up demand, perhaps some restocking effects, things like that. If you could talk just a little bit about the phasing in the quarter as to how you've seen the business progress because some of these items that might begin to slow now, and also related to that from your own cost perspective. Obviously, we know there were lots of cost actions taken.
The things that were stopped beforehand, like marketing or things like that, need to restart now. Just to get some sort of sense as to how things normalize from here in terms of your progress. Thanks.
Yes, good morning, Martin. The thing is, we are not in a situation of normalization yet. We thought, at the beginning of the year that we would have a difficulty too, that the situation would stabilize. You've seen as much as we see it ourselves, the rate of increase of the infection cases has now been taking place, which is bringing uncertainty in the near term. I would not talk about normalization on the market yet. We still see on the professional side of the trade, but also to a given extent, on the consumer side, but to a lesser extent, that the level of the inventories are not at the levels at which they were before the crisis.
Given the uncertainties that we have ahead, we still see our customers not willing to replenish the inventories at the historical levels. There is still, across end user segments, a lot of variety and still a market that is not fully redeployed. When we talk about the public segment, which is probably the one which is still having a fair bit of traction because of investment in infrastructures, supported by different types of stimuli. When you look at the retail professional customers, except probably food retail, the other part of that market is really down, and it has not improved.
We see a slight improvement recovery at this point in time on the hospitality business, but it's not come back to its historical levels. Offices is down. On the industry side, I think there's a lower traction for manufacturing plants equipment. On the other hand, we see a lot of traction on the warehouses. We are still in a period of relative high level of uncertainty, and I don't think we are close to a normalized situation. From a cost perspective, you would remember that we had savings of around EUR 56 million in Q1, EUR 86 million in Q2, but in Q2.
We had also the measures that we did put in place in terms of solidarity, which were around EUR 30 million on the non-manufacturing cost, the indirect cost that would bring them back compared to Q1, around EUR 56. We have commented that it is EUR 20 million for Q3, but we also have to take into account that the differential between what happened in Q3 last year and Q3 this year. Last year, we had to release some provision, and this year we accrued, linked to the fact that we had a bit of a worse performance last year than we expected, and probably a bit of a better one this year than expected.
Which would bring the delta in terms of cost much closer to 15 and to 20. From a cost perspective, what has been done all over the year is quite consistent and of course, helping the performance. Your question is very important because, moving forward, we are operating. People are working from home. We're not traveling a lot. We're looking at what should be our landing point in terms of cost if the activity goes back up, meaning that we resume our normal way of doing business, with the top line that may still be impacted, at least in the shorter term.
We're working on it at this point in time, Martin. We're looking at what can be done in a more structural way in order to adapt the cost structure of the company to whatever we have in front of us. We remain very adaptable to the situation.
That's great. Thank you very much.
Thank you. Our next question comes from the line of Lucie Carrier of Morgan Stanley. Please go ahead. Your line is now open.
Hi. Good morning, gentlemen, and thanks for taking my question. My first one actually is around the renovation market. I was hoping you could give us maybe some indication in terms of, within the portfolio, your share of non-residential business versus resi. If we think about the non-resi exposures specifically, how much of that exposure is subjected or is driven by what I would call substantial renovation project? If you would have that indication for Europe, considering the announcement on E.U. Green Deal, that would be quite helpful. That's question number one.
Much stronger traction in the residential market, I think you know it. You've seen the numbers in the U.S. that were very positive. When we come to the non-res, we estimate that about 40% of our turnover is depending on that market, Lucie.
That 40% of your non-residential exposure is exposed to renovation?
It's 40% of our business which is exposed to the construction non-res.
Okay. My question was more, how much of your non-residential exposure do you think is exposed to renovation? 40% is non-res at the group level. Within that, how much is substantial renovation.
Yeah. Understand. Look, these are not numbers that I have at the top of my mind, but you need to see there's another important understanding here. Renovation for us is quite large. Basically, when the ceiling is being changed, for us, it's like a new project. I would say that if you have normally one-third is new and two-third is renovation, for us, it takes a different proportion because when the ceiling is taken out, it's like if it was a new project for the lighting business. Look, we don't have the statistic that you mentioned here.
That we're not communicating specifically on that. What we say is that the exposure of the overall company to construction non-res is about 40%.
Okay. Thank you for that. My second question was around the UVC lighting sales. I was hoping you could help us understand how much that business was growing, and also it seems that it is both on the conventional side and on the digital product side. Whether you could maybe separate the two. I just wanted to have an update on your capacity increase. You had said you were going to increase capacity by eight times by the end of 2020. I was just curious whether that increase was already achieved or whether this is yet to be completed, and if you are planning further increase in capacity in this area, and if so, for which cost?
Let's take it by part, Lucie. I think that's the right way to do it. Let's talk about conventional products. This is where we are increasing the capacity because we're increasing the capacity of light source, and the light source is a conventional light source. We are on track to multiply by eight our capacity at the beginning of 2021. At this point in time for these products, for the conventional part of the business, we are on allocation, meaning that we cannot serve all the orders that we have at this point in time despite the capacity increase.
There's a clear intake of business in UVC in the conventional part, which is also showing not only UVC, because we're also performing well on horticulture and on the consumer business, but this is why we show in the conventional part of the business, a lesser decline than the previous quarters at -11%. Let's move to the other businesses. In digital products, we've launched already on the market in Asia and Middle East to start with, to be expanded to other geographies.
A disinfection desk lamp for the home, which is equipped with voice guidance and sensors in order to make sure that it shuts off if there is any presence in the room. This is a product that is gonna be, we believe, very successful, of course completely complying with the safety requirements. We also see traction, and it's the beginning. Although we see already an impact on conventional products, it's still yet to be seen on digital solution where we see the business starting to grow.
We've talked about 12 families of products that we will bring into the market that is effective, and we're monitoring the deployment of these technologies worldwide because there is a need worldwide at this point in time. We start to have interesting wins. We've talked about in Q3, the football club of RB Leipzig, where basically we're equipping with air disinfection and the commercial part of the building in the stadium, but also the locker room. We start to see a conversion also of the technology into sales in the professional part of the business.
We need to understand that from a go-to market, we're learning, and it is also, I think it's an advantage in the longer run. It is a complicated pitch to be done by salespeople. When they need to understand the technology, they need to understand the application. It requires to have very well-trained sales forces, which is what we are doing at this point in time, making sure that we have capable people, capable to understand the technology, the application of the customer, and to serve them with what they need.
We see the traction very clearly in conventional products, and it's growing in digital solutions.
Sorry, regarding whether you are looking to increase further capacity after the eight times that you have already planned.
We have the possibility to do it on a very short-term basis if needed. It's not planned at this point in time, but I have reserved that possibility to do it very quickly if ever we need it in 2021.
Thank you very much.
Thank you. Our next question comes from the line of Marc Hesselink of ING. Please go ahead.
Hi. Good morning. Thanks. My first question is on gross margins. You mentioned the mix being beneficial clearly from the connected home segment. Just talking more in general about gross margins, what are you seeing? I can remember from the previous call that you said because of COVID-19, there has been maybe a little bit less competitive pressure, and therefore, price erosion on the top line. Also the dynamics that you're seeing with the cost of goods sold. If I'm correct from the press release, that is beneficial for you as well.
Could you explain the dynamics and how you see that going forward?
Yes, Marc. First, the gross margin focus has been a very important focus for us since the beginning of the crisis. I think I've said that a few times. At the end of January and beginning of February, we gathered all the teams and explained what would be the trajectory or the expected trajectory for our gross margin. We have, in order to do so, accelerated the synergies with the acquisition that we had made. Cooper on one hand, but also Klite Lighting on the other hand, by insourcing more some of the production that we had at supplies in China, which is basically also improving our gross margin performance.
We've seen in Q3 a positive mix impact, as you've mentioned it, from the connected offers, not only on the consumer side, but also on the professional side. We have continued to apply a very rigorous pricing discipline. Price is about method. Price is about being consistent on the market, making sure that we can segment our offers. Meaning that if you have a given offer, you could have different way to serve that need with different offers that are segmented from lower price to higher price. That goes also into the protection or even the improvement of the gross margin.
What you see in terms of operating margin improvement is gross margin led on rigorous pricing management, but also linked to a good performance in cost of goods sold. We've always performed quite well in cost of goods sold over the past years because we had to decline the cost of the products quite substantially. We continue to do that. I would say that the acquisition of Klite Lighting and even more the acquisition of Cooper have been very important for us to be able to achieve further reduction in cost of goods sold, because we are taking an even bigger volume.
It gives us a big advantage when we need to negotiate with suppliers. It's been a combination of taking decisions very quickly and then executing very rigorously on the price side, executing very rigorously on the COGS side, and a mix impact that has helped also in Q3 because of the connected offers.
Okay, that's clear. Second question is on the digital product side, so the connected home. Typically, the fourth quarter is the key quarter there, being very large compared to the rest of the year. Given that you already had a very strong third quarter, do you think this is something that will accelerate going into the fourth quarter? Is it also something that maybe it's put forward a bit? Would be very interested in your view there.
No, it's not really put forward, Marc. I think the fourth quarter is always a very important quarter for all the consumer business, and we think it's still going to be the case this year.
Okay. Thank you.
Thank you. Our next question comes from the line of Daniela Costa of Goldman Sachs. Please go ahead.
Hi. Good morning. Thanks for taking my questions. The first one I wanted to just ask follow up on pricing on your commentary of the erosions in LED decreasing, which contrasts, I guess, with sort of some of your peers who are using more or set to use more tactical pricing. Can you comment sort of like on the market that do you see this price erosion as more of your own efforts to stay disciplined, or do you see sort of a risk going forward from the commentary of your peers? How would you plan for that if they get a bit more aggressive? I have a follow up on cash, but I can ask later.
Yes. Good morning, Daniela. Look, when it comes to pricing, and you may remember since the IPO, we've always said that pricing is a discipline, and we don't use it tactically to gain share. There may be very specific situation where we can be aggressive, but I would say it's going to be much more on projects where the competitive landscape can change. When it comes to product, we're rigorous. We're not tactical. We would reply to aggressivity on the pricing with a strategy. Let me give you an example.
When there were some price erosion on the market, we decided to bring in the markets where it was necessary a B brand. Meaning that for a given segment of the offer, you would have the B brand at a lower price than you would have A1 , A 2, A3 different products answering the same need, but with different types of functionality and different prices. I think that's the way that we implement within Signify in order to face aggressivity or aggressiveness in pricing from competition. What is very clear to us is that our brand has also a price elasticity, which is not infinite.
Whenever the prices are too low, we don't address that market with our main brands. We use a B brand. This is the way we answer, not by moving price up and down tactically. I think that the strategy, which has been rigorous, stable, consistent, is also very important in front of our customers who expect themselves to have us coming with a strategic pricing approach. That's the way we do it, Daniela.
Thank you. On cash, normally, like Q4 cash seasonality is quite favorable. You had a very strong Q3 anyway. Shall we expect a reversal in Q4 or still the normal Q4 seasonality being much better than other quarters?
Thank you very much, Daniela, for that question. I think over the first half year and also in the second half year, we have done a lot to improve the phasing of our working capital movements, making sure that the cash comes in more evenly. We have a history of strong cash flow, as you quoted in the second half of the year, particularly in Q4, and we remain very confident that also our cash flow will be solid in the fourth quarter. I add, of course, that our working capital is at a very healthy level, and we also are confident that we can sustain that.
Thank you.
Thank you. Our next question comes from the line of George Featherstone of Bank of America. Please go ahead. Your line is now open.
Hi, morning, thanks for taking my question. Coming back to free cash flow, I think in your original guidance, expectations were for free cash flow percentage sales to be at least 6% for the full year. Year to date, I think you're running at just over 10% of sales. Given the performance you've had so far, is there any reason not to reinstate the guidance for the full year?
Morning, George. The truth is, given the uncertainty that we saw on the market at that point in time, we didn't really think about repositioning the guidance. You see where the performance is today. We're confident on our capacity to continue to generate a free cash flow in Q4. Let's take it where it is. Is it going to be better than 6%? We maintain that guidance for the full year, we're not expanding it at this point in time.
Okay, thanks for that. Maybe one follow-up from me on the UVC side of things. It seems as though obviously in conventional you've had quite a pickup relative to your historic organic sales decline. How should we think about the normal run rate of this business going forward, given the contribution from UVC?
Look, nothing is normal at this point in time. This is the other issue that we're facing because we have markets that are going down, markets that are going up. Consumer business moving a bit faster this quarter than the rest. The situation is still extremely fluid. My conviction is that we should have a positive impact of conventional UVC on the overall performance of our conventional business. Not only UVC, I think horticulture also should have a positive contribution to that business moving forward. When are things going to normalize and at which level?
I think it's very early to say it, the only thing I can tell you is that I see a positive contribution of those businesses to the overall conventional business.
Okay, great. Thank you very much.
Thank you. Our next question comes from the line of Rajesh Singla of Societe Generale. Please go ahead. Your line is now open.
Hi. Good morning. Thanks for taking my question. It seems that the connected lighting business is doing pretty well for you and probably aiding margins as well. How do you see this business growing forward? Also, how are you planning to monetize this connected data, which you probably are getting from these connected lighting sources? That is the first question. I will ask my second question afterward, if that's fine.
Yes, sure. On the connected lighting, you have two parts, Rajesh. One is what we do in the consumer space, and that has been a longer-term investment on Philips Hue. We've invested a lot over the past six to seven years to create a platform which is very complete, from the app to all the different connected products that are compatible with that ecosystem. We're not talking only about bulbs, we're talking about luminaires, we're talking about light strips, we're talking about entertainment, and all these around use cases, with control devices, smart plugs, smart sensors, and so on.
We offer a complete ecosystem, and that was the strategy from the very beginning. It's not about product, it's about the system that is connecting everything together. We have both. We have made the acquisition of WiZ a bit more than a year ago, and I'm extremely satisfied with the performance of that business, which has been growing slightly more than the aggressive growth that we had in the business plan. That part of the consumer smart home lighting is complementary to Hue.
We talk about Wi-Fi and Bluetooth, where on the side of Hue, we talk about Zigbee and Bluetooth. At the end of the day, we're covering that market fairly well, and we are aggregating data, and I'm going to come back to that. We've seen also very good traction on the professional side of the business, where we have verticalized when we reorganized Signify, as we commented a few quarters ago, with more customer centricity, more specialization.
Now we have teams that can do the quotation, the sales, the delivery, the installation, the commissioning of those professional systems within the same team. We see very positive results in terms of funnel growth and also in terms of sales expansion. This is totally in line with our strategy. We believe that after the transition to LED, the market will be transitioning to connected. Now, you rightly said that we're generating data when we connect. I have to tell you that at this point in time, we have a service business, data-enabled service business.
It is, at this point in time, small. We see that not many customers are going for it at this point in time. It's going to be very much depending on some segments. We see that the industry segment, this is where the customers are the most likely to go for it. We're working on it. We think the market is not totally ready for this, but it will be in the future. I think we'll give some more indication about all this during the Capital Markets Day that we will conduct in December 9th.
Okay, thanks for that. My next question would be on the U.S. market. If you could share your insights into what is happening in the U.S. market with respect to price and volume.
On the U.S. market, we had a very positive traction on the consumer business. You see also that at the level of the U.S. market, we see a very positive traction on digital and e-commerce, which we have also benefited from. The residential investments in U.S. are still quite strong. Here we see a very positive development on both sides. When it comes to the professional part of the business, it really depends on the segments, as I've commented earlier. We don't see a great pressure on price. We see degradation of some end markets.
You still have, as we commented earlier, some companies on the market maybe practicing lower prices. For us, we are stable in our positioning when it comes to price with very segmented offers. It's really what we face on the U.S. market, like in many very different tractions depending on the end markets.
Okay. Thank you. Thank you very much.
Thank you. Our next question comes from the line of Akash Gupta of JPMorgan. Please go ahead.
Yeah, hi, good morning, Eric and René, and thanks for your time. My first question is related to ESG. Signify is a leader in the sector when it comes to ESG, given you started putting efforts way ahead of everyone else. The question I have is that, is there any risk to dividend this year on social grounds, given you had to ask your employees to take 20% salary cut in early part of the year?
Let me try to understand the question a bit better. Is there a risk given on social grounds?
Given the policy this year, because you have to ask your employees to sacrifice 20% of their pay cut early in the year.
Yeah. Let me reposition what we did this year. We went to our employee base because we realized very early on, and that was in February, March, that Q2 would be a very impacted quarter from a top-line perspective. We said to our people worldwide, given the situation that the economies are in and given the situation that the society is in, we want to refrain from laying people off.
That was a very strong willingness that I had at the time because if you lay off in the situation in which the planet was at that point in time, you bring more problems to the society, and certainly, the people that are losing their job have very little chances to find a new job in a market which was very much in a bad shape. The commitment that we take was to say to the people on a voluntary basis to contribute to working one day less. By working one day less to have an adjustment pro rata to their salary.
We did that only for Q2 because that was the quarter that we had to tackle a bit differently. We took also a commitment, Akash, which is a very important one, that we would not lay off if that was happening. From a societal standpoint, I think that what we've done is great because we didn't bring more problem to the society. We didn't lay off people, putting them in complicated situation. We have opened the possibility of people to do it on a voluntary basis.
I can tell you that the employee Net Promoter Score, which is a measure that we conduct on a quarterly basis after this measure, has reached its highest ever level within Signify at 29. At the end of the day, we need to understand very well what we did and why we did it, but there was a very big societal thinking and a lot of clear principles behind what we did at this point in time. I think we are all quite proud of what we did and how we globally reacted. By the way, until now, we haven't done any layoff. We find other ways to adjust the cost of the company, and this is also another testimony of our strong commitment to the decisions we made in Q2.
Thank you, Eric. Maybe just a follow-up on the same topic. This means that you don't need to compensate your employees before considering dividend, am I right?
Sorry, I didn't hear you well. We don't need to compensate the employees.
Compensate for, because, you took this temporary measure in Q2, but your performance has improved subsequently in Q3. Q4, we still need to see, but the question I have is that, is there any case that you may need to compensate your employees for the contribution they made in Q2 before you consider dividend?
Look, at this point in time, I think it's a good question. Look, the year is not finished. Unfortunately, after what has happened during the summer, we have an increased uncertainty entering Q4. There's more uncertainty in the near term than before. Let's finish the year, which is an important milestone for us in order to see where the company is and what we're going to do globally. We have different mechanisms in terms of compensation that we can use in the company in terms of bonus that we call annual incentives, based on performance criteria.
This is not a simple answer, it's a global answer because as you rightly say, everybody contributed in Q2. It's the supervisory board, it's the leadership team, it's also the shareholders with the dividend, and it's the employee with the voluntary contribution. Yes, we have an equation that we need to understand a bit better. For this, we need to go until the end of the year and see really where the performance lies at the back end of December.
Thank you, Eric, for your comprehensive answer.
Thank you. Our next question comes from the line of Sven Weier of UBS. Please go ahead. Your line is now open.
Yeah, good morning from my side. Thanks for taking the questions. The first one is a follow-up on the European Green Deal, and obviously we now got some more details released by Brussels, but the document is still a little bit light in terms of what specifically is going to be promoted. In previous documents, we could see insulation, solar, and things like that, but lighting has not been mentioned as an area. Do you have any further insights how lighting could be specifically promoted in this in the coming years? That's the first one. Thank you.
Yes, Sven, there are three areas that the Green Deal is targeting where we can contribute. The first one is everything which is around climate change and clean energy. This is about connected energy efficient lighting, but also solar-powered lighting. The second is about food security. There's a comprehensive approach in the Green Deal when it comes to this, and here we can contribute with horticulture and animal lighting.
The last one we can certainly contribute to is circularity with the offers that we have put on the market, and especially the deployment of 3D printing devices that we have started to implement three and a half years ago, and we are the most advanced lighting company when it comes to this. At the end of the day, we are pretty much contributing. What we're doing at this point in time, we're doing that centrally at the level of Europe, but also in all the different countries where we operate.
We connect back to the local governments in order to go from what you rightly call so far a light approach to something which is a bit more pragmatic, a bit more practical. Basically, we are bringing to Europe, but we are bringing also to the countries where we operate, and we operate in nearly all the countries in Europe. We bring to them examples of what can be done. What would be the wise investments, yielding an important and a fast return, and invest in lighting. We get a positive traction. People listen.
Now, we always want this to go a bit faster than the actual speed. Look, we're very involved. I was myself involved also with the Vice President of the European Commission in order to explain how we could help and how we could contribute at the level of the Green Deal, but also which is very important for us, helping Europe to be carbon neutral in 2050, because we believe that there's a clear possibility that we could do so. We are very much engaged, and we believe we can contribute.
There's a process in that program, and we try to speed it up as much as we can, locally and also centrally at the level of Europe.
Okay. Understood, Eric. Thanks for that. Second question is just coming back on the non-resi bit of your exposure. I just wonder if you could share just more granularity on what it is specifically like the office and hospitality breakdown. If you look at U.S. non-resi stats, obviously down very heavily so far this year, but huge deviations in that between the segments. I guess George was sounding a bit cautious on the outlook there.
Yeah, I was really wondering if you could share some more details on your specific exposure there, and because I think that would help us to frame our expectations on the business in the next 12 months.
Yes. Look, we looked into it because the situation has been extremely volatile this year. We were, in general, talking about numbers. These numbers have varied because of the crisis as we have seen a different mix in terms of technology, a different mix in terms of geography, but also a different mix in terms of customer and segment. Look, Sven, let me not do it here. With the team, we're going to work on it and come back with something which is going to be a bit more comprehensive and use those segments during the Capital Markets Day in order to give a bit more clarity about our exposure.
Yeah. Thank you for that, Eric, again. Would you say that the Cooper acquisition has made you a bit more defensive or more exposed to the segments that are more defensive or just directionally any major change to the exposure that you had before Cooper?
No. I think the Cooper is bringing us a fantastic access to the market where we can bring our technology and bring our differentiated innovations. On the contrary, I think this acquisition make us maybe, probably more aggressive on the market and capable to take not only market share, but a much bigger overall share when you combine the two front offices that we have. One of them, Cooper, which is probably a bit more versed towards indoor applications.
If I look at the historical Genlyte part of the business, probably a bit more versed towards the outdoor part of the business. In that sense, it's also pretty much complementary. No, at this point in time, that didn't induce any type of defensive position. On the contrary. We feel that we have a much better handle on the market with that acquisition, and it's been so far very positive for us.
Okay. Thank you, Eric. Looking forward for December then.
Thank you.
Thank you. We are now approaching the end of the call. We will now take our last question from the line of Joseph Zhou of Redburn. Please go ahead. Your line is now open.
Hi. Thank you for squeezing me in for this one. I have two questions. First, just to quickly follow up on UVC. Where are you with the production expansion now? Can you be a bit more precise? Because your plan is to increase it by a factor of eight by early next year. Where are you now? Also on UVC, what do you see in terms of the market dynamics for traditional UVC technology versus the LED technology? My understanding is that in the end, you would transit towards LED.
Are you seeing that happening faster now or is UVC still traditional, still the dominant technology, then there is no change in that?
Hey, good morning, Joseph. Look, we had an expansion of capacity. We had three different programs when it comes to the increase of capacity. Program one was the expansion of an existing capacity at one of our supplier. That has been effective. The second one was the repurpose of an oven, a glass oven that we have in Poland, where we have a big industrial complex. That one is also done. The last one, which will be finished before the end of the year, is a new oven that we're also building in Poland to tackle with that capacity increase.
I would say that at this point in time, we've done nearly between half up to two-thirds of the capacity increase that we wanted to do, and we confirm that we're going to finalize it according to plan by the end of the year, multiplying it by a factor eight between the 1st of January 2020 and the 1st of January 2021. When it comes to LED, it is very early days at this point in time to generate the same type of energy and particles that we need to kill viruses. The LED technology would require us to put so many LEDs that it is not, at this point in time, a suitable solution with that technology to date.
I think it's going to take a long time before it is becoming an alternative to conventional UVC.
Yeah. Thank you. My second question is on your digital products business. Within that, obviously, you have the LED and the home divisions, which you're not disclosing now. I guess part of the strength in the quarter was driven by strong Philips Hue sales and margin. Can you give us some color on that? I guess it must be a good double-digit growth for the old home division in the quarter, and also maybe quite a good double-digit margin for Philips Hue for home as well.
Can you maybe give us a bit of color on what kind of a margin level are we seeing now for the home part of the business?
When you talk about Digital Products, you have different businesses within the Digital Products division. You have professional part and a consumer part. The professional part is made of the OEM business and the professional lamps. We've seen this business having the same type of performance as the rest of our professional business, which is Digital Solutions. Pretty much impacted by the crisis, depending on the geographies, but very similar type of trend. On the consumer business, you have also two different types of business, the LED non-connected, and that has been performing quite well worldwide.
What has been performing even better is the Philips Hue offer, which was part of home, both on the lamps and the luminaires, and also the WiZ offer. That's an acquisition that we did more than a year ago that has been performing extremely well since we did the acquisition. That has also been contributing substantially in Q3. That part of the business has grown even more. We're not disclosing the growth rate at this point in time, Joseph, but let me put it this way. In the countries where we were strong, we have gotten even stronger.
We see that the established system that we have put in place, which allows you to have a platform and an architecture to which you connect a lot of different product, is something that is working because consumers are connecting more and more product to our platform. That's what I would say about digital products, many different things in the same division, but all in all, on the professional side, similar to the other part of our professional business. On the consumer non-connected, good performance, and on the consumer connected, very strong performance.
Yeah. Okay. Thank you, Eric.
Thank you, Joseph.
Thank you very much. I would now like to return the conference call to the speakers for any further remarks.
Hi, ladies and gentlemen. Thank you very much for attending today's earnings call and for taking part in the discussion about our results. If you have any additional questions, please do not hesitate to contact Serena or myself. We're more than happy to answer your questions. Again, thank you very much, and enjoy the rest of your day.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.