Earnings Call: Q1 2020

Apr 24, 2020

Ladies and gentlemen, welcome to the SignifAI Earnings Call Q1 twenty twenty. For the first call of this call, All participants will be in a listen only mode and afterwards there will be a question and answer session. I would now like to give the floor to Robin Jamson Head of Investor Relations. Mr. Jansen, please go ahead. Thank you, Tara, and good morning, everyone, and welcome to the SignifAI Earnings call for the first quarter results 2020. With me are Everett Rondolas, CEO of SignifAI and Renee Von Scholter, CFO OKhi Adjens, who will take over responsibilities for IR from today onwards, is also joining us today. In enrollment, Eric will take you through the first quarter business and operational performance. Renee will then tell you more about the financial performance in the first quarter, and Eric will end today's presentation with our financial outlook and conclusion. Our press release and the related slide deck were published at 7 am CEP 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, Robin. Good morning, everyone, and thank you for joining us today. Let's go immediately to slide 4 with the main elements of our performance in the first quarter. So the installed base of connected light points kept on increasing from 56,000,000 in Q4 2019 to 1,000,000 in the first quarter of 2020. Our comparable sales declined by 15.3%. But we continue to make good progress in reducing our cost base, excluding the impact of currency movements and changes in scope, our adjusted indirect cost decreased by EUR 56,000,000, a reduction of 11.1%. Our adjusted EBITA margin improved by 10 basis points to 7.9% with a neutral effect from currencies. Net income was 1,000,000, and we delivered a free cash flow of 1,000,000, which was a EUR 57,000,000 higher than last year. And last but not least, we completed the acquisition of Cooper lighting on March 2nd, the work done by the teams between signing and closing allowed the integration to immediately start from day 1, I am very pleased with the progress I made to date. Let's move to Slide 5 to give you an update on the COVID-nineteen pandemic and the actions that we have taken. So from the start of the outbreak, we have taken a very agile and thorough approach in dealing with the challenges through global and local crisis response teams. From the beginning, the health and safety of our employees, customers, partners and people around us have been our number one priority. We have implemented a variety of policies, including a strict ban on domestic and international travel, access restrictions to our site, homeworking and very stringent hygiene and health measures across our plants, logistic hubs, and R and D centers. We have provided protective equipment such as hand sanitizers, masks and temperature measurement tools. We supplied lights in the new hospitals in Wuhan and increased production of UVC lamps used for sterilization and disinfection. Wherever we can, we are helping. Our global manufacturing capacity has also been impacted but restored above 80% in the loss of Q1. We have also implemented a broad range of mitigating action to preserve our profitability and cash flow. So these measures include savings in, amongst others, selling expenses, travel costs and procurement costs. We have also taken advantage of measures to protect our cash flow, including rigorous working capital management, curtailment of uncommitted and non essential capital expenditures and the withdrawal of the dividend proposal. As we expect demand to be further impacted in Q2, we are actually accelerating and extending mitigating actions, for instance, supervisory board and leadership team, took a 20% salary reduction for Q2. And I am proud to see that more than 85% of our employees voluntarily supported a 20% working time reduction and pro rata pay adjustment for a period 3 months in the second quarter. In addition, we also exploring new opportunities arising from this situation on one hand through new business opportunities such as the production of UV Zealands, as mentioned earlier, but also through the acceleration of our digital transformation. I believe that all these measures I just talked about will help us to increase our market position. At the same time, our liquidity remains strong with a cash position of EUR 924,000,000 at the end performance of our growing profit engine, LED professional and home. Despite the decline in top line, the growing profit engine had improved the adjusted a margin by 100 basis points to 7.7 percent, driven by professional and also, buy home. Let me now provide you with more details for each of the 3 growing profit engines starting on Slide 7 with LED. So the comparable sales declined by 16.2% Both Elibilance And Elige Electronics were impacted by the COVID-nineteen pandemic. Initially, the impact was mainly on the supply side, which then evolved into a declining demand as a result of the measures taken by governments and customers across the world. The adjusted EBITA margin declined by 100 basis points to 10.9 percent, mainly due to lower sales volumes. On the next slide, Slide 8, you can see some of the business highlights for this quarter for LED. Let me zoom in on the launch of the Fortimo Sian enhanced EV boards for human centric lighting in offices. So after extensive, study of biological effects on lighting signify launches these LED boards that stimulate the bioresms just like daylight does. This enables productive days at the office and good sleep at night. Let's move now to Professional on Slide 9. Nominal sales increased by 6.7% which reflects the consolidation of Cooper lighting for March 2020. Comparable sales declined by 14.2% with largely, which largely reflects the COVID-nineteen outbreak. The adjusted EBITA margin improved by 100 and 40 basis points to 6.7%, driven by an improvement in the gross margin as well as savings in the indirect cost base. And there are a couple of business highlights that we would like to bring to your attention on Slide 10. So in the first quarter, we launched Interact Retail Multi Site Management together with Max and Spencer. This allows retailers to centralize lighting management for multiple stores from a single dashboard and provide insights into energy savings and light failures. We have also expanded our collaboration with Planet Farms to provide Horticulture ALD which enables Planet Farms to boost the quality and yield of crops at Europe's largest vertical farm all year round. And we will also provide a hockey culture LEDs to an additional 5 vertical farm, planet farm, which they are planning to build in Europe. Next to that, we have also extended our solar lighting potential to Northern Countries through the Vipps combo charge, which enables street lights to use solar powered electricity, when there is sunshine and switches back to the main power grid to keep roads and streets safe at the darker times of the year. This is expected to open up new markets for solar power lighting. Finally, and we also had Colony and to become a smart city with interact city by connecting 85,000 light points, which will help to improve and safety and quality of life in the city. Let's now turn to Slide 11. And talk about home. So home reported a decrease in comparable sales of 8%. The business group started with a solid performance at the beginning of Q1, but demand started to deteriorate in March. Due to a weaker market activity in Europe and in the U. S. The adjusted EBITA margin improved by 700 basis points to 0.9% supported by gross margin improvements and cost measures already taken in 2019. Also for whom, we would like to share a couple of business highlights with you on Slide 12. Phillips, you received recognition for being ranked 21st out of fortunes Magazine 100 greatest designs of more than times and received 5 Red Dot Design Awards for PDQ products. We also further expanded the functionality of zones in the Phillips new app, this allows users to control the zones they create in the HU app with our accessories, including motion sensor or Dina switch. It also enables easy check of battery levels of accessories directly in the app. Let's now move on to our cash engine lands on Slide 3. Comparable sales declined by 17.8%. We believe this decline is lower than the market decline resulting in continued market share gains. The adjusted EBITDA margin remained solid at 17.6 percent. Let's now turn to Slide 14 to talk about the acquisition of Cooper lighting solutions. On March 2, 2020, SignifAI completed the acquisition. Key business systems have been successfully segregated from Eaton Coplating is now creating as a business unit within SignifAI. The agents on both sides are committed to the go to market approach and associated benefits of the acquisition. The integration teams are also well on track to achieve the anticipated cost savings in procurement, supply chain and sourcing optimization. The performance synergies are ahead of plans, and we are on track reduce transportation and storage costs. We also realized significant cost avoidance by leveraging existing shared services centers in HR, Finance And IT. In addition, we have identified additional revenue synergies in multiple product market Well, this is what I wanted to cover regarding the business and operational performance highlights. I will now hand over to Renee will tell us more about the financial performance for the first quarter of 2020. Before delving into the Q2 financial performance, I would like to take this opportunity to thank Robin, who has decided to leave SignifAI as our primary point of contact with the investment community. As Ronen mentioned in his opening remarks, Rohir Dierux will take over Robin's responsibility from today onwards. During Rohir's 17 years tenure, Adroyo and Signify where here has held multiple finance positions, most recently, as Head of Finance for the business group's land, and the business group home. Please join me in welcoming Rohir in the IR function. I know he looks forward to engaging with all of you going forward. Let me now provide you with more granular information on our Q2 results on Slide 16 where you see the adjusted EBITDA bridge. The adjusted gross margin as a percentage of sales increased by 50 basis point in Q1 twenty twenty, including a negative currency effect of 10 basis points. The impact on price of price on the gross margin was lower than in preceding quarters and is offset by ongoing savings in the cost of consulting Our indirect cost base decreased by EUR 56,000,000 compared with Q1 twenty nineteen when excluding the impact of ForEx and changes in scope as a result of the acquisitions Cooper lighting and K Lite. The overall ForEx impact on the adjusted EBITDA margin was neutral. Let's now go to Slide 17. You can see the quarterly development of our indirect cost base We have made good progress on further reducing our indirect cost. This is the result of carryover effect from many initiatives we implemented last year. And on top of that, very early in Q1, we have started to implement mitigating measures to preserve profitability and cash flow. As said, this has resulted in EUR 56,000,000 in Q1 excluding the effects of currencies and changes in scope. We continue to work on initiative that will further decrease the indirect cost base. We're on top of what's happening around us and adapt our cost base as soon as we see things happening. Let's now take a look at working capital in the first quarter of 2020 in the next slide, Slide 18. When we include sales of Cooper lighting and KLite, on a 12 month pro form a basis, Working capital decreased by 3.20 points basis points to 6.1 percent of sales in Q1 twenty The improvement was mainly driven by solid inventory management and lower receivables and higher payables. Let's now take a closer look at Since the end of Q4 signifies cash position has increased by 1,000,000 to 1,000,000 at the end of Q1 2020. You all realized that net debt increased by 1,200,000,000 which reflects the $1,400,000,000 bridge loan facility we used to finance the acquisition of Cooper lighting. Next to the profit we generated in the quarter and the changes in working capital I just mentioned, you can see the other items in the bridge that impacted the cash and as a consequence our debt position. Net CapEx was 1,000,000 in the quarter and the net changes in provision was 1,000,000. Next to that, we paid EUR 38,000,000 for tax and interest, all in all, our net debt position amounted to EUR1.8 billion at the end of Q1. Before I hand back the call to Eric, I would like to update you on some financial elements now that we have closed the acquisition of Cooper Lighting. First, we expect the adjustment items, including restructuring costs, PMI rates costs and other incidental items to be around 2.5% of sales, which is similar to the level we experienced in 2019. Our net CapEx is expected to be around 1 we expect our effective tax rate We anticipate that the acquisition of Cooper Lighting will slightly lower our effective tax rate in the medium term. And the net interest costs for 2020, including Cooper lighting, are currently expected to be around 1,000,000. More detail related to the purchase price allocation will be provided in the semi annual report, and let me now hand back to Eric for the final part of considering the uncertainty about on the global economy, we do not provide financial guidance at this point in time. I would like to conclude this presentation by saying that I am satisfied with the measures we have taken to protect the health and safety of our employees and the people around us while preserving profitability and cash flow in the first quarter, we are building on these achievements and are taking extra measures to manage our performance in the second quarter as we expect demand to be further impacted. We also started to explore new business opportunities arising from the situation whilst remaining very close to our customers. I believe that all these measures will help us to strengthen our market positions and come out of this crisis stronger. With that, I would like to open the call for questions, which Roni and myself, I happy to answer. Ladies and gentlemen, we are now ready to take your questions. Please. And our first question comes from the line of Lucy Carrier from Morgan Stanley. Please go ahead. Your line is now open. Hi, good morning gentlemen and thanks for taking my question. The first one I have would be on professional. And I was hoping you could maybe comment on the top line trajectory during the quarter and how also the current trading is looking like because we seen already a couple of companies in the sector, construction exposed companies already reporting and the decline of 14% in professional seems quite stream also, versus those other companies. So I was also wondering if you had done some portfolio pruning during the quarter. On top of what I would call the market decline. It really depends on the geographical exposure that the businesses have. You know, the way we have modalize the crisis is through, 3 different waves of countries that are going one after the other one into the crisis. So in wave 1, you will have, in the most three countries from Asia and wave 2, countries from Europe and in wave 3, more Countries of the Americas. And wave 1 is taking place between the beginning of Q1 and probably into the middle of Q2, wave 2 middle of Q1, middle of Q2 and wave 3, and Q2 to middle of Q3. So that's the way we've modelized it. So when you look at Q1, we were very impacted from a top line perspective in countries like China, in countries like India, in countries like ASEAN, And I would say at the back end of the quarter, also in countries, of Europe, like, Spain, Italy, and France. This happens also to be a country and especially the first one I've mentioned, which are quite a strong in the professional part of the business and we see and we have seen strong declines there. There was no portfolio pruning at all in the first quarter. Are you able to comment on on current trading or or not at all? Sorry, Lucy. The line was breaking. Could you repeat your question, please? Sure. Sure. As as part of my of my question. I was asking whether you were able to comment on current trading and professional. We have given the indication that we don't provide an outlet going forward. So, we cannot comment on this question at this moment in time. Understood. And my second question was around the cost savings, very strong number. In the quarter about EUR 56,000,000. Can you maybe help us, kind of understand whether this is something we should extrapolate for the rest of the year based on the initiatives you put in place. And also you haven't given us much indication in terms of how you were seeing Cooper synergies kind of contributing to this overall potential savings number for the year? Of course, you have noticed that we made the savings, and that's not the first time. So we have already, embarked on the road to reduce our indirect costs and all other kinds of savings for a long period of time. And in that context, we also benefited of the carryover effect of the previous years On top of that, we have taken extra steps to, as soon as we saw how, the economic environment was changing And of course, also going forward, we will benefit from those as well. And the key work I want to use in this context taxes agility. We adapt our cost quickly on the situation we confront. Of course, let me then expand immediately a little bit. We consider in principle all the cost flexible, and therefore, we also are very acute and fast in, in either taking the cost out or re phase them depending on what the market needs. Cooper, maybe, Erik wants to give a further Topoff. Yes. Thanks, Tony. On Cooper, basically, we are moving according to plan and in some aspects also ahead of plan. Of course, the top line will be impacted versus the original plan, but we have very quickly with the team of Cooper accelerated the plans we had, if you remember, in terms of synergy, we had 3 different levels of synergy on the procurement that's going extremely fast and ahead of plan on the, the drivers and the conversion of drivers that's also moving on very swiftly and also on footprint. And we have already started to look at some of the footprint optimization that Cooper already had in the plans and that's also moving ahead. So I'm very pleased with what I've seen so far and how the teams are working together. Combining efforts to make that happen. And also our position on the U. S. Market, as you know, we have taken decision to go with 2 different front office. That seems to be very well accepted by the market and our respective agents. In that territories. So all these are positive points. Now, when I was there, we also discussed about additional opportunities, especially in terms of top line synergy that we had not looked at very specifically in the acquisition process because we had for an acquisition, I prefer to look at back office synergies, but there are also some front office opportunities that we are looking at at this point in time. So all in all, moving in the right direction since we close in, in March 2nd or March 2nd. Thank you. I'm sorry to press here, but you had, I think, never really provided the exact phasing we're expecting for Cooper synergies over the next couple of years. So what are you precisely expecting in terms of synergies for this year? Well, we gave a number of 60,000,000 over 3 years And the synergies I've given to you are going to be in order of, first achievements. So we think that we're going to achieve the procurement synergy, the fastest, then we'll come the synergies on driver procurement and then, you know, the footprint synergies take a bit longer and they probably are going to be revealed in your second and year 3. Thank you. Thank you. Our next question comes from the line of Daniella Costa from Goldman Sachs. Please go ahead. Your line is open. Hi. Good morning. Hope everyone's alright. I wanted to, ask about the work capital reduction, especially when you were having a report saying it's 6.1% of sales, ex Cooper, is a big move versus last year. How sustainable is that going forward? Were there any one off there. I'll start with this 1 and then I'll follow-up. We wanted to reflect also the math sales of, of Cooper. So the 6.1 represent a pro form a number. Uh-uh, and yeah, there are no exceptional, items in it. We, of course, have also here a track record of looking at this working capital, but in particular also at inventory very intensely. And we because of the volatile and the certainty, we have tightened up our loops of feedback loops. So we are going through the whole S and OP much faster than before. And adjust what we make and what we sell, and that is one of the major factors behind this result. But no incidental, large incidental items in this area. Can can you keep this type of level or, as you go into sort of lockdown in Q2, we might see some I don't know. You can maybe you can not unwound the inventory the same way. How should we think about it on the on the near term? Maybe, can I can look at individual elements? Infantry we, we keep that tight control over ordering and keep looking what is necessary. So we are normally very good at that. If I look at payables I can only say that we do that also in close cooperation and in contact in communication with our suppliers. So also they work on the same basis, a faster loop in all the food all the good flows. In payables, I also hasten to Edward. Last time, we indicated that we had a little bit of a slip of 20,000,000 payables going from Q1, Q4 to Q1. That's not in the that's not in this press release, but that was communicated earlier. And then I come back to, to the receivables. Receivables are, of course, affected by how many sales did you do in the past. And of course, if our sales go down, our receivables should normally also come down But in this day and age, it also depends on whether everybody is paying on time. And as so far, that has gone actually quite well. We are in close contact with our customers and we are also very confident that we can maintain appropriate behavior also from their site. In paying a relatively on time, our over dues hardly increased in Q1. Very clear. Thank you. And just a quick follow-up, on the refinancing of the bridge, for Cooper, maybe I missed it, but, I didn't see, I didn't catch her. What's the latest update there? We have a bridge financing in place. Of course, this is a bridge financing, which has also the opportunity to extend it two times, but the fact that it's a bridge financing reflects also a temporary nature and we continue to monitor the market developments in order to find a suitable time to take next steps in the debt market. Capital Markets. Thank you. Our next question comes from the line of Joseph Su from Redburn. Please go ahead. Your line is open. Hello, Eric. Hello, Renee. Thank you for taking my questions. I hope everyone is keeping well. And 2 questions from me. I'll go one at a time. First question is, is I know you can't talk about or don't want to talk about current trading, but can you tell us a bit about your March exit rate? Obviously, the lockdown situation means the start of, 1st part of March and second part of March are quite different, for the Western, countries. So can you tell us about, so that the the the the exit rate, in the second part of March compared to the first part by division, if possible. Yes, good morning, Joseph. Look, at the end of the day, it doesn't make such a big difference, by division in terms of how the partners look like. I mean, you see the division, the divisions decline. Now, let's look at the pattern effectively. When we started Q1, we had mostly the country wave 1. I have indicated the ones that were the main detractors in the performance. And yes, in March, we're adding some countries of Europe and mainly Italy, Spain, and France in the northern part of Europe, the performance was was much better. So the exit and the March performance in top line was a bit lower than what it was in the 1st month of the quarter, but I would caution you that the exit rate in one is not giving any clear mitigation about Q3 because if, you know, country is changing, the lockdowns are very different depending on the country is what we look at at this point in time. You know, there are 3 different levels of lockdown. If it a mild lockdown, which only concerns the recreational activities, we can be touched by a minus 10% in terms of comparable sales growth. If the lockdown extends also retail activities, it can go to minus 20, minus 30. And that if we add a construction, it can go to minus 50. And if on top of the construction being blocked, the installers and cannot work and read the activity, the whole construction activity slot, we can go up to to minus 60, minus 17. Now you know and you see that all the countries are implementing measures at a given time and let's give an example of Singapore. Singapore was on, I would say, mild lockdown until 2 weeks. They went into a complete log on just a few days ago. If you look at other countries like India, India is in probably what we can consider at this point in time in the most severe lockdown. And it has been in the past days, just pick standing by one moment. So at the end of the day, as Ronin was saying, we are facing a very, very fluid situation and we are adapting and we are adapting. Now what we can say is the impact in Q2 as we see it. We see the convergence in Q2 of the countries, of the 3 waves. So we believe that Q2 will be further impacted and more impacted than Q1, but I would not take the exit rate of Q1 to defend Understood. Very clear. Thank you for the color. And my second question on your free cash flow, I know you have withdrawn your guidance, which proves that it's more than a 6% free cash flow margin. I mean, given that a downturn, you typically have working capital release that shall we kind of expect around 6% for the year in sort of free cash flow margin. Is that possible? No, that's what we have by definition of given the certainty of the lack of visibility, we have, we have suspended the outlook, but let me tell you that according to what was described by Ronet, so we have taken measures extremely early. What is not always known is that we started to work on some of the measures that impacted Q1 in January. And they will further continue to improve our performance in Q2, adapting because we are spending the measure beyond what we have already done in Q1 and we have started the expansion measures already in March. So at the end of the day, we are not going to leave any stone until when it comes to working capital. In the situation that we're going to face in Q2. And we are doing everything, as Ronet has said, to maintain a healthy free cash flow. But sorry, the guidance that decision we made. Okay. Thank you, Eric. Thank you. Our next question comes from the line of Andreas Willie from JP Morgan. Please go ahead. Your line is open. Yeah. Good morning, everybody. Thanks for your time. My first question is on your salary reduction plan. Maybe you could talk a little bit about more about how you went about that in terms of getting 80% of your people to accept, voluntary reduction in in in pay and and working hours. Is this a a mix of government programs and your own initiatives and I'm just surprised about if it's voluntary that such a large part of your organization is willing to give up the salary, maybe you could elaborate a little bit more, on that because we haven't really seen that as a big feature from other companies, so far, if this is all III rather than the government, programs. And the, second question, maybe you could give us an updated, end market breakdown professional now with with Cooper on a pro form a basis, how it splits into maybe outdoor industrial office and commercial? Thank you very much. So let me explain the salary reduction approach. So we first started to talk about this very early on. Welcome by Marketing Conference Call Service. Welcome to the SignifAI Earnings Call Q1 2020. After the tone, please could you clearly state your full name and your company followed by the hash key. Quentin Bosch Company webcast. The talk. So our willingness was not to lay off people and on the contrary. Take to the opportunity of the crisis to strengthen the solidity and the unity of our teams, but also act in a very strong solidarity move. And then how do you reduce costs if you don't lay off people in a situation like that one. What it was to say to our people and we communicated a lot all around. You know, some of you have been communicating with more than 100 different audiences in the past weeks. In order to explain that as a company, as a socially responsible company, we don't want to bring more problems to the society at this point in time. And we don't want to put our people in a situation where they are on the unemployment market and they will not find a job at this point in time. So we want to keep our community together. But as top line will be impacted by the lockdown that are achieved by countries all around the world. We ask people to, to monitor Lily, give a day and have the salary reduced by 20%. The whole organization was been done so that this could be done also electronically by people. So they go on our insurance site and there, over there have the capability and the possibility to tell us yes, I'd I'd give one day out voluntarily. So all was all the process was very well engineered. So this is why we can come with numbers today that are quite accurate. And I tell you that above 85% of the population worldwide in all the countries where we operate, have responded positively, which is, you know, a great satisfaction for us. And let me also add, Andrea, that this is not including the government helps. The government helps would potentially come on top of that because they are government health in some countries. And we are looking at this point in time where And if we can, we can use them because they normally come with a lot of different criteria. So we need to see if we are eligible. So this is the whole story, you know, how it started, how we communicated and the result of these more than 85% of the population contributing voluntarily, not including the government heads that would come on top of that. Let me take your second question about the market breakdown with Cooper. So Cooper for the I've been consolidated for a month the positive elements about that is that it has also contributed positively, in terms of cash, in terms of profit, and also in terms of of comparable sales growth, which was already very positive in March. Look, we don't give specific breakdowns, but we would say that the Cooper lighting business is, probably having a more indoor focus than Outdoor, which was also one reason why we did the acquisition because as signify, we were before Cooper, probably more outdoor than indoor. And Cooper is bringing a position, which is more indoor than outdoor, which was also a great fit from from an end market or portfolio perspective. But let me lead into this. Thank you. The next question comes from the line of Martin Wilkie from Citi. Please go ahead, Martin. Your line is open. Thank you. Good morning. It's Martin from Citi. So my first question was on KLIGHT. Obviously, you made that acquisition towards the back end of last year. Given obviously the supply chain disruptions in China area in Q1, just to understand, was the integration there delayed can things be accelerated? We could know that China seems to be back up and running. So that's my first question. Thanks. Cellite was very impacted in Q1, not from, not from a China market perspective because Cellite sells very little. In China. But when, you know, the crisis broke out in China, there were 2 issues. So the first one is when you need to, when you needed at the time to reopen your plant, you needed 2 things. 1st, getting the authorization from the Chinese government And second, you need to get back, your employees. And during Chinese New Year, the employees are all going back home in their hometown. And after Chinese New Year, they're normally coming back. But the government had stopped the movement of people in between Chinese provinces. So the issue of kelrite was that first, we needed to have the authorization. And when we got the authorization, we didn't have our people because they could not move from their province back to K Lite and back to Heineen and Ningo. So at one stage, we could even organize transportation ourselves to get our people from the provinces where they were back to the factories. But I would say that, during 2 thirds, of, of of the first quarter, K Lite was heavily impacted because of the lack of capacity to produce And I would say that at the backend and, you know, in the end of the quarter, we had to redeem our production capacity to 75% to 80%. So now everything is okay and our suppliers are also back up and running. But, yes, you're right, Martin, Kelite was impacted quite severely in Q1. And do you think that because obviously you didn't give huge amounts of details on your intention of a key light, but there obviously was a cost saving to come with that. So it's effectively the benefit of that KLite integration can start from now? Is that the way we should look at it? Yes, because can you highlight the different facets? One of them was to give us the capability to be very competitive in some parts of the business. And that's a reality. And we see that, you know, with Skylight, we also starting to take some businesses that we could not take previously. And we have already seen that happening. And the second element was to bring some of the volume we have at other suppliers to KELITE in order to integrate and to consolidate the margin of those suppliers and further increase our gross margin. And by doing that, we the volume of kelatch, we dilute their costs. So that's the model. Now the model works. What happens is with the crisis, probably we will integrate some of the business we have at other suppliers a bit faster. What at the same time, increasing the capacity of KLite for when the crisis stops. So, we had a late start in Q1, but the team over there reacted extremely well. They were extremely agile and to adapt, to adapt the costs. And, we are probably, I accelerating a bit more, the plan that we had originally to bring back some of the volume we had at suppliers to KELIGHT in order to to keep the volumes as high as possible. You know, the situation once again is very fluid, but here, the teams are working extremely well and extremely quickly. To adapt and to accelerate some parts of the plan. Thanks. And if I could ask you a second follow-up question. On your distribution channels, we've heard different messages as to what distributor destocking has happened or not in Q1. I guess it may be difficult to tell given how quickly things have changed. But but do you get the sense that there's still a lot of destocking to happen at at the company that distribute your products or or did a lot of that happened already during Q1? The situations Loftina are very very diverse depending on the, on, on the country and how they were touched by, by, by the measures linked to the virus. In the countries where the activity has stopped meaning that the construction activity has stopped the installers. I stay at home. There was no real destocking, clearly also, there is less selling in, given the lower activity but we have not seen a brutal destocking on the professional distribution channels. I think that today, the distributors are trying to keep their point of sales open as much as they can, but in some instances, the count. And they maintain an inventory, which is balanced according to the new needs. What we have seen is the mixes of their customer and the mixes of their offers changing dramatically. Meaning that a product which was a high runner previously becomes a mid runner and a product that was, you know, mid to slow mover previously becomes a high rotating items So what we have done, especially with our key and top professional distributors, we're getting very close to them. In order to understand what is happening at the level of this selling out. So we're not really looking at with selling in, but they're selling out and we're building plans with them in order to make sure that we support with their inventory and ours to capture with the demand, which is changing and with the demand, which is fluctuating. So this is the way we work together. We work together also we work together also very closely to tackle another issue that already has been mentioning, which is receivables, making sure so that they do a business with customers that are paying them if they're getting paid we are getting paid. So there's a lot of activities at this point in time of getting closer to our customers where there is still some activity. Where our customers are not working, we're training them. So we took also the opportunity of the crisis to develop a lot of training and we're training our customers when they have also times to be, to be trained. In the consumer distribution, especially all those customers have online capabilities. We haven't seen any Bluetooth destocking. Maybe selling out and selling in average just a little bit, but we still have a floor of business moving there. Okay. Thank you. That's very helpful. Our next question comes from the line of Mark Hatterlink from ING. Please go ahead, Mark. Your line is open. My first question is on operational leverage. So I think pretty impressive with the top line decline that you can could completely repair that lower, lower in the p and l. But if you're looking to the coming quarters, you said the impact can be even even even larger. Is that something that you can continue? Right? Is there more to squeeze out to keep that, the negative operational leverage out? And second question is on your comment that you in the press release for new business opportunities. Could you elaborate a bit more on that what do you see as a longer term impact for your industry and signify on the end markets when the worst of this is over? So, Mark, there's a fundamental factor in operational leverage, which is, you need to do it very early on and need to be very fast. So the it's not only a structural element in the company. It's more a matter of philosophy and speed. So the earlier, the better. And what we're trying to do systematically when it comes to cost adjustment is to try to anticipate and make sure that costs are out whenever the volume comes down. And we've done that in many different different fields of operation. So yes, we could do that in Q1. So Q2 will be the continuation of what we've done in Q1, plus some additional measures that we have talked about. But once again, Mark, we are also learning by working as the situation is very fluid. And we consider as a philosophy that no cost is fixed in the company, but we need to come with the plans that help us very quickly with the best possible anticipation in order to, to reduce them. That's the philosophy. That's what we're doing. We're going to continue to do that in Q2. What we have realized in the course of Q1 is that an activity that we had historically in our business, which is about UV lamps, is something that we needed to develop further. Let me explain. Basically, a UV lamp is not anything visible light. So that's the that's the curious notion of UV lamps, but it will emit molecules and particles that I'm going to disrupt the DNA chains of viruses. And we can do that for water, we can do that for surfaces or we can do that to disinfect the air. And we realized that, that crisis coming on. And I would say not only during the crisis because I think this will survive after the crisis, that we had fantastic opportunity to grow that business. Today, we do the light sources and we sell them to OEM customers. And we are at this point in time, developing very, very fast and ramping up on our capacity because we see a demand for those UV lamps all over the world at this point in time. So we have taken measures and we've spent money. Sometimes we are saving money and in that case, we are investing money in developing our capacity to produce light source for UV lamps while at the same time developing also full catalog of duplicative fixtures in, for UVLabs. And we do that, you know, in the US, also for Cooper lighting and all the in all the different countries where we operate. So we believe that this is a very interesting opportunity First of all, because it's totally in line with our strategy and with our purpose, which is also to provide light, which is taking care of the health of people on the planet. So that's a very important aspect for us. And at the same time, we believe it's an interesting growth opportunity for now in the future. Okay. Thank you. Ian Amrubank. Please go ahead. Your line is open. Yes. Good morning. Can you hear me? Yes. We can. Very good. I actually got 2 questions. So first of all, if we look at the cost savings for this quarter, it was extremely impressive. Both on the gross margin where you had a 50 bps gross margin improvement, as well as on the cost saving with $56,000,000 in the quarter, if I'm not mistaken. But can you give us much more practical examples on what these are actually, are all about. So the gross margin improvement is that procurement, is that pricing, is that mix So how do you improve that gross margin so quickly in this quarter? And the same with the cost savings, Can you give us more practical examples? Are you closing down factories, reducing footprint, or what are you exactly doing in this particular quarter so that we can assess what the stickiness is of these, these measures. And then specifically within professional, think it's almost defying gravity what you're doing with a comparable sales decline of 14%, yet your margin goes up by 140 basis points. That's a very solid achievement and we need more practical examples on how you achieved that. Yes, good morning, VIM. Let me take the gross margin and then I will let Ronet give more practical examples and detailed examples about cost savings. So at the beginning of Q1 and probably in the second half of of January, we gathered with the leadership team and we set to ourselves an objective to very closely look at the gross margin and find ways and find ways to expand it. On the basis of the same idea that we had that we were seeing the company being impacted from a top line perspective and we need it to find ways to protect the bottom line and the cash. So basically you need to do 2 things. It's extremely simple and basic. You need to increase the gross margin and reduce costs. So let me talk to the gross margin. In the gross margin improvement, there are many different elements. 1st, an accelerated speed on everything, which is, related to, bump savings. And we are clearly ahead of our plan when it comes to, deal of material savings. Now, you also understand that by integrating Cooper within SignifAI. It gives us also an additional buying power and we've used this in order to negotiate with our suppliers, giving them an overview on the long term business, but as with improved conditions as we were increasing also our volume. And we did that once again extremely quickly in order to be able to achieve this type of performance. We have brought a lot of our capabilities in R&D on concept savings in order to further decrease our bill of material cost. Because sometimes you have to improve the cost of the product you need to work on technical matters and that has paid off. At the same time, we had also a dedicated actions in some given countries for some given line of products to increase the to increase prices. 50 basis points of improvement of gross margin is okay. Our objective was to do more than that, but we had also to cater for under coverage in the factories because when the factory is producing less than what was originally forecast, you cannot always adapt the cost and you have a little bit of under coverage, which is being managed, but it's not an easy thing an easy thing to do. So once again, on the gross margin, its price, its bill of materials is also managing well the under coverage, but it's also doing that very fast and very quickly in Q1. Now I can let maybe Can you give some more elements about cost saving, more precise elements? Yes, thank you, Eric. Of course, I always start with just my first remark is always, yes, this is not new to us. We already are already a long term period busy with reducing our indirect costs. And if you are then confronted with a situation like this, There are a few bonuses as well. A crisis like this also allows you to focus on the mind. And we, of course, do the usual thing. It's, of course, reducing travel. We have a hiring freeze but we go beyond. And basically everything, which is an indirect material spend, we ask, do we need it or do we need it now? So also rephrasing is a major element in reducing the costs. And that's basically affecting everything. You also could, of course, if you want to give an example, we have a launch pump. We want to do certain things, but maybe the market is not ready for a few launches. So you will postpone those launches to a more appropriate period with the associated costs. We can then also either stop or postpone. And we do that, of course, on the marketing side, with A and P, but also in some of the R and D cost So everything is being challenged and either stopped or, pushed out I hasten to add that are also still opportunities, and we still continue to invest in those things, which are relevant for now or once the recovery is very clear to us. So we keep on investing in our online capabilities and Eric already mentioned a few times UV Lance. So we do that as well. Thank you. And maybe as a follow-up, if I look specifically here at the gross margin, you basically said we have It's a mix of a lot of things, and the integration of Cooper also helped reduce the bill of materials. What would the gross margin have been if you did not have Cooper, I. E. Out of the 50 basis points, what is related to basically procurement and what is related to all the other measures that you did to protect or even improve the gross margin? It's very, very difficult to say. I do not have even the numbers myself in my head. I would, but I would tell you that this improvement of the gross margin globally for the group is not linked to Cooper. Thank you very much. Thank you. Our next question comes from the line of Rajesh Singh from Societe Generale. Please go ahead. Your line is open. Hi. Thank you. Good morning, everyone. This is Rajesh Singla from Societe Generale. A couple of question, please. Given your strong ESG ranking, are you considering green bonds as an option to refinance your $1,400,000,000 bridge loan facility? And if yes, then how much, interest cost saving we could assume, from that? And, the second question is, will it be possible to share the breakup of your sales in B2B and B2C categories and which one of these categories is worst impacted so far? Thank you. I can take the second part of the question, and I will let R and A with the first one regarding the green bonds. Breakup of, I would say, is 25% consumer and 75% professional. I mean, if I tried to sum up, let me take it a bit differently. When we look at the impact we had in Q1, I would say the impact we had in Q1, is coming from the countries we've mentioned previously. China India, Asian, Italy, Spain, France. And they were quite big detractors in the numbers in Q1. At the same time, if I look at the top line and we have made our evaluation we look at the capital value of top line, which has been impacted in Q1 because of COVID-nineteen crisis, one third, is linked to supply and 2 thirds is linked to demand. B2C, B2B will really depend on the lockdowns. I would say that if it's only recreational and retail, maybe look. Sorry. I'm I will not I will not try to to improvise. It's a bit complicated to give you a strict numbers I would say that it really depends on the situation. I would not know how to answer, but it's 25%, 75% consumer versus Ronnie Nadeem Green Bonds? Yes, thank you very much. I understand the question. I also already responded to Danielle to a somewhat similar question. So we continue to monitor the market developments in order to find a suitable time to take next step in a debt market. And of course, we explore all the options, which all the instruments, which are available to us. And we know that we have a good story on ESG. So where that is applicable, we will also make that clear, but I can't comment anything further at this moment in time. Okay. One more question, if I may ask, if this is regarding the UV lamps, which you earlier mentioned, So can you share, with us, like, what percentage of your sales is currently from the UV lamps business and what kind of market size you are looking at it? Look, it is marginal today. So we're not really commenting on detail. It's marginal today, but but can grow multi fold. Thank you. We are now approaching the end of our call. We will now take our last question from the line of George Vanderstone from the Bank of America. Please go ahead. Your line is open. Could you provide some color on what project sanctioning is like in construction markets right now across the various different regions? And the implication of this house for recovery in your business over the next 12 to 18 months. So I assume it's on the professional market. Let me, do a general approach that we have seen in most of the countries that are being impacted. And once again, depending on how much or how strong the lockdown is that impact can vary. But as a general rule, we've seen the following. On the professional market and for the professional business, in general, we see the big project or the big project still continuing. We see also a continued traction, even if it's at a lower level of the smaller project and the smaller sales. It's in between that we have seen, projects not being canceled, but project being postponed. If I look at, some end markets and end customers like food retail, in food retail with opportunities because these customers are active. And we see opportunities in the traditional business, but also opportunities in the new business I was describing previously. So we have today ongoing projects to provide solution to disinfect trolleys for food retailers. And we see these opportunities happening in many different continents. Namely the Americas and Europe. In other parts of the business, other and segments, office, warehouse, manufacturing plants. When some of the sites are not anymore open. We see customers taking the opportunity to take to make some refurbishment. Small projects, but we see also that happening. On the public opportunities, we see some stimuli, which are being put in place by many governments And for the outdoor part of the lighting business, we see today some opportunities, coming on linked to the development of infrastructures. And here, this is a strong point because we are normally very well positioned for these opportunities. It's street and roads, some, government buildings, So we are really looking at that and we see potential growth there. Now we're also doing something which is quite interesting at this point time, even if customers are not going to make the decision immediately, we take the opportunity of the crisis as there is a global slowdown. So these customers have got, I would say it like that, a little bit more time to listen to us, educating them about connected lighting. So we do that a lot, going to customers, talking to them about the benefits of, collecting lighting and increasing our final projects, even if realization may come in most of the cases a bit later, but we're taking the advantage not only train our own people, but also to train our own customers on the benefit of connected lighting. By the way, if we look at our business when it comes to what we what we are calling systems and services. So the connected part of connected lighting, it has performed far better than the rest in Q1. Pleasure. Thank you very much. I would now like to return the conference call to our speakers. Ladies and gentlemen, thank you very much for attending today's earnings call and for taking part in discussion about our results. If you have any additional questions, please do not hesitate to contact the IR team. We're happy to answer your questions. And again, thank you very much and enjoy the rest of your day. This now concludes our conference. Thank you all for attending and you may now disconnect.