Ladies and gentlemen, welcome. Before we start the meeting, I have a few general remarks. In addition to your attendance here in Eindhoven, this meeting can be viewed via the live video webcast available on our website. The webcast will also be available after the meeting, where we will use the recording to prepare minutes of the meeting. The meeting will be held in English. We have translation services available, and this means that here in the room you can also follow the meeting in Dutch using the headphones. In the live webcast, you can choose to follow the meeting in Dutch by clicking on the relevant link. We invite the shareholders to ask questions prior to the meeting. We have not received any questions for this meeting with a request to share these with you.
As this is an in-person meeting, questions can be asked here in the room and not remotely. If you wish to ask a question, please raise your hand so I can give you the floor. But please remain seated. A microphone will be provided to your seat so you can ask the question. When speaking into the microphone, your question can also be followed via the webcast. You can ask your question in either English or Dutch. Please state your name and, where applicable, the organization you represent. I kindly ask you to keep your question short and concise. At some point in time, I may need to limit the number of questions or speaking time in order to observe proper meeting order. We'll explain the voting procedure when we reach the first voting item.
I'd ask you, please, to put your phone in silent mode and not to make any pictures or recordings. Thank you. This will be the last time that I'll be the chair of the shareholders' meeting of Signify, as I will step down from the Supervisory Board at the end of this meeting after having served two full terms. My fellow Board member Gerard van de Aast will take over as chair of the Supervisory Board at the end of this meeting. I now open the Annual General Meeting of Shareholders 2024 of Signify NV. I'm pleased to present to you, behind the table, our CEO Eric Rondolat, our CFO Željko Kosanović, our CEO Maria Letizia Mariani, and our CEO of the Professional Business Harsh Chitale.
And on this side is our Chair of the Remuneration Committee Gerard van de Aast, and our Supervisory Board member Bram Schot will follow this meeting remotely. The other members of the Supervisory Board are present: Sophie Béchu, Pamela Knapp, Rita Lane, and Frank Lubnau. Our Supervisory Board nominee Jeroen Drost is in the room and will present himself to you during the meeting. Behind the table, at that side, you'll see the Secretary of the Meeting Michiel Thierry and Lotte Bolhuis, Deputy Secretary. And André Wijnsma at that side is present on behalf of the External Auditor Ernst & Young. Now let's move then to the first agenda point: presentation by the CEO Eric Rondolat. Eric, may I give you the floor for your presentation?
Thank you, Arthur. And good afternoon, ladies and gentlemen, and welcome to our 2024 AGM. So let's start by looking back at 2023, where we continued to experience tough global conditions but succeeded in strengthening our financial profile. We expanded our gross margin by 180 basis points to 38.2% through a combination of lower costs of goods sold and a positive pricing effect. We delivered a healthy free cash flow of EUR 586 million, representing 8.7% of sales. Our adjusted EBITDA margin was at 10%, stable compared to 2022. While the consumer-connected segment was impacted by inflation and reduced disposable income, we successfully gained ground in connected professional systems. Connected lighting and growth platforms reached 30% of sales, and LED made up 85% of our sales. Globally, our installed base of connected light points reached 124 million by the end of the year.
The past three years have been marked by supply chain disruption that impacted deliveries and customer experience. Resolving this has been a priority in 2023. As a result of the measures we have taken, we have steadily increased order and delivery customer satisfaction over eight consecutive quarters. We continued to advance our innovation, investing 4.2% of our sales in research and development, 88% of which expenditure was dedicated to sustainable innovation, drawing a future-proof and purposeful portfolio of products, systems, and services. Let's take now a closer look at our sustainability results. I am pleased to say that we continue to make substantial progress in 2023. We are on track to deliver, against our ambitious goal of doubling the pace of emission reduction required by the Paris Agreement 1.5 degrees Celsius scenario, by the end of 2025.
In 2023, we reported our full-scope greenhouse gas emission, including the Scope 3 product use phase. This has been audited with reasonable assurance, which is an unprecedented milestone for a multinational manufacturing company like Signify, with tens of thousands of products in our portfolio. This is significant not just in reducing our own footprint but in driving transparency of the environmental impact of our products and enabling customers to make informed decisions. Signify operations have been powered by 100% renewable electricity since 2020. In 2023, we secured access to renewable electricity in Europe for the next 10 years with a third virtual power purchase agreement. We surpassed our 2025 circular revenues target of 32%, mainly driven by serviceable luminaires with a strong performance for both consumer and professional.
Our Brighter Lives revenues are tracking ahead of schedule at 31%, with a strong contribution from the professional luminaires portfolio. Women hold 29% of our leadership positions, slightly lower than our 2023 target. We are continuing to increase representation through focused hiring practices for diversity at all levels and through retention and engagement actions. Finally, Signify has enjoyed some very valuable external recognitions, including our seventh consecutive year in the Dow Jones Sustainability World Index, our fourth EcoVadis Platinum rating, and a seventh year on the CDP Climate A List for transparency and performance on climate action. Let's now move to our five frontier strategies. First, we are building a more customer-focused organization and driving process excellence. We are steadily building on our customer Net Promoter Score, which increased to 53 globally in 2023. We continue to drive toward a differentiated position in the market.
We continue to invest in R&D. As of 2023, we hold 20,000 patents. In addition, we achieve double-digit sales growth on our Tiered offerings, including B-brand and private label, as well as continuing to drive innovation within the established LED segment with our ultra-energy-efficient products. Signify continues to gain ground in connected professional systems and services, with connected lighting and growth platforms reaching 30% of our sales and LED-based sales at 85%. To digitalize and transform for the future, we are improving our digital front and back ends and increasing our data analytics capabilities to better serve our customers. In 2023, we launched online channels for new offerings, modernized our online presence, and improved the robustness of our digital platforms. Our direct online sales remained stable at 12.7% of revenues.
AI is now being deployed to enhance our customer experience and optimize our operations, including in our customer care centers. To ensure Signify is a great place to work, we are investing in our people, creating a diverse and inclusive workplace, and deepening our digital and commercial competencies. Our employee Net Promoter Score declined to 26 in 2023, which we expected following announcements at the end of the year on the need to restructure the business and reduce our costs. 63% of our Signify employees work on their own development as active participants on our learning platform. Let's now look briefly at the highlights of where our strategic journey has brought us so far. So we are the world leader in conventional LED and connected lighting. We provide high-quality and efficient light sources, luminaires, systems, and services.
We achieved EUR 6.7 billion of sales in 2023 and have expanded the numbers of connected light points to 124 million. We employ around 32,000 people in 74 countries. In the past decade, as you can see on that slide, Signify led the transition from our industry, from conventional to LED. In 2012, conventional lighting made up 78% of our sales. In 2023, 85% was LED, with connected LED and growth platforms reaching 30%. Now let's take a moment to focus on our new operating model. At the end of 2023, we announced our plans to transition to a new customer-centric organization while reducing structural costs. Through this step, we organize our company around four vertically integrated businesses. The professional business will offer LED lamps, luminaires, connected lighting systems, and services to customers in the professional segment.
The consumer business will offer LED lamps, luminaires, and connected products to customers in the consumer segment. The OEM business will offer lighting components to the industry. The conventional business will offer special lighting, digital projection, conventional lamps, and lamp electronics. Our previous structure was process-driven and supported our transition to an LED-based business. The new model is based on end-to-end profit and loss responsibility, enabling adapted process alignment and execution. In addition, by reallocating resources and reducing centralization, we simplify our structure and reduce our non-manufacturing costs by over EUR 200 million. These changes to our organization and the cost restructuring program will be implemented through 2024, with the majority being achieved by Q2. We will now look at our progress in the first quarter of 2024.
So we reported first quarter sales of EUR 1.5 billion, a comparable sales decline of 10.1%, and an operational profitability of 8.3%. Our installed base of connected lighting grew to 126 million. LED represented 87% of our sales, and our free cash flow was EUR 80 million. Our outlook for the remainder of 2024 now: So we expect an adjusted EBITDA margin improvement of up to 50 basis points, including the first benefits from the restructuring program. We expect free cash flow generation of 6%-7% of sales, including an incremental and non-recurring negative impact of around EUR 150 million related to the restructuring program and a reduction of U.S. pension liabilities. Now let me share some examples of our connected LED and growth platforms in action.
So in 2023, we diversified within the connected consumer segment, launching fully integrated home monitoring and connected lighting solutions under both the Philips Hue and WiZ brands. In North Sumatra, as you can see on the slide, we deployed Philips SmartBright all-in-one solar street lights. These are fully autonomous, requiring no cabling, so they could be installed in this challenging landscape without damaging nature or scenery. Our 3D printed lights are lightweight and printed locally to reduce CO2 emissions. They eliminate waste by using recycled and mass-balanced bio-circular materials. And because they are custom-made, we can incorporate special colors, textures, and logos. German football club Werder Bremen chose specialized, customized 3D printed downlights at its stadium, also available as a consumer product for fans who want to take a piece of the club home with them. Our horticulture solutions are at work, growing food crops on the farm.
So Great Lakes Greenhouses in Canada is North America's largest supplier of hydroponic cucumbers. With Philips GreenPower LED and GrowWise control system, they can harvest fresh, premium vegetables all year round. Built for the Chinese consumer market, our F9 floor lamp expands our eye-care concept from the desktop to the whole room, incorporating state-of-the-art sensing and AI technology. UMass Memorial Health is the largest healthcare system in central Massachusetts, offering the region's most sophisticated medical technology and support. They have deployed ArcMed products from Cooper Lighting Solutions in 80 rooms to improve patient experience and well-being. These tunable lights support a trend to make patient rooms more home or hospitality-like. Finally, I want to draw your attention to the work of the Signify Foundation. The Signify Foundation is an independent NGO funded by Signify that enables underserved communities to access the benefits of sustainable lighting solutions.
In 2023, the foundation completed 31 Brighter Living projects focusing on informal and refugee settlement, 15 Brighter Learning projects in schools, playgrounds, and children's homes, and 6 Brighter Health projects in clinics and health centers around the world. Through their tireless work and aided by Signify employees, the foundation supports organizations working on the ground to bring the many benefits of lighting to the communities who need it the most. In closing, on behalf of the board of management and the leadership team, I would like to thank our employees worldwide for their dedication, resilience, and passion for our business. I would also like to thank the customers who continue to put their trust in Signify and our shareholders for their ongoing confidence and support. Thank you.
Thank you, Eric. Eric's presentation is closely connected to the agenda items on the Remuneration Report 2023, the Annual Accounts, and the Dividend Policy. Therefore, I suggest we first give our presentations and then jointly discuss the topics of agenda items up to and including item 7. In agenda item 5, after the explanations from the external auditor, Ernst & Young, we will address questions on agenda items 1 through 7. After that, shareholders can vote on the proposals of these agenda items.
We will now move on to agenda item 2, the Remuneration Report 2023. Just as in previous years, the Remuneration Report is included in a separate chapter of the Annual Report. It explains the remuneration policies for the Board of Management and Supervisory Board, and the implementation of these policies in 2023. I will now hand over to the Chair of the Remuneration Committee, Gerard van der Aast.
He will discuss some key elements of the remuneration report 2023. Gerard.
Thank you, Arthur. Ladies and gentlemen, our current remuneration policy for the board of management was introduced in 2020. We are proposing changes to the remuneration policy for the board of management, which will be addressed under a separate agenda item, agenda item number 10. For now, I would like to focus on our current board of management policy and the remuneration report for 2023, and the execution of our policy during the year as detailed in the remuneration report 2023, which is chapter 10 of the annual report. Over the course of the year, we engaged with multiple stakeholders for discussions on remuneration in general to solicit feedback on our proposed policies, as well as to solicit feedback on our report for consideration for 2023.
This group of stakeholders included shareholders representing a large portion of our shareholder base, as well as shareholder representative groups and the Dutch Central Works Council. Altogether, we invited investors representing a total of 37% of our shareholder base to meet with Signify on these topics, and ultimately, meetings were held with shareholders representing 18% of the shareholder base, excluding passive investors. We had valuable conversations with all stakeholders on executive compensation in general, and specifically on concerns raised on our remuneration report 2022. We have taken the feedback into consideration for the 2023 report, most specifically the increasing of transparency for the team and individual metrics in the annual short-term incentive plan, which you would have seen in the report. We trust that you will experience the enhancements positively and appreciate the spirit of transparency and continuous improvement that drives them.
Personally, I would like to thank those with whom we met for the overall very constructive discussions. These meetings are a very important part of our governance process. Then, moving on. In line with our remuneration policy, this slide illustrates the remuneration of the board of management in 2023: salaries, as well as targets for annual and long-term incentives. For 2023, base salaries were increased with 4%, which is in line with the collective and merit increase budgets allocated for employees under the collective labor agreement in the Netherlands. As I described earlier, there were no changes to the structure of the remuneration of the board of management. These target levels for the annual incentive and long-term incentive have remained the same for the duration of the current policy. I would like to have a look now at the structures of the incentive plans. First, the annual incentive.
To refresh our understanding, this slide details the structure of the annual incentive according to our current policy. For the 2023 annual incentive plan, we selected as financial performance measures comparable sales growth, adjusted EBITDA, and free cash flow in line with prior years. In addition, 20% of the annual incentive for the board of management reflects team and individual measures. For 2023, these measures included people engagement and culture change, customer satisfaction, U.S. business performance, the recently executed organizational redesign, cash optimization, inventory management, progress on our strategic frontiers, and finally, progress related to the Brighter Lives, Better World targets for current year and trajectory to the 2025 plan. Then, moving on to the long-term incentive. With respect to the structure of the long-term incentive plan, four metrics are applicable: sustainability, relative TSR, total shareholder return, free cash flow, and return on capital employed.
These metrics are all weighted equally at 25%. The slide details the linkage between the overall Signify strategy, the ESG metrics included in the Brighter Lives, Better World five-year program, and the long-term incentive structure and metrics for the board of management. Now that we have refreshed on the structures themselves, I will turn our attention to the realization for the annual incentive and the long-term incentive. Shifting to the actual outcomes of the incentive plans, you can now see the details with respect to the actual realization of the annual incentive plan. Targets for the annual incentive plan were set at the beginning of 2023, were applicable for the full year, and were not adjusted during the year, despite the ongoing volatility and unpredictability in the global environment. The company was, of course, impacted by this volatile and unpredictable external environment.
Although the company adapted, performance on the financial metrics were very mixed for the year. This slide details the actual payout for each Board of Management member, which was driven by the performance results as detailed on the right-hand side of the slide. The top right table shows the performance on the financial metrics included in the plan, which are weighted, as we just discussed, at 80% of the total outcome. Performance on comparable sales growth and adjusted EBITDA were both below threshold levels of performance. As a result, the outcome on these two financial metrics was zero. The performance on the third financial metric, free cash flow, on the other hand, was very positive. Signify delivered a healthy free cash flow well above the threshold level of performance expected. As a result, the achievement on that metric was 136%.
Overall, it was a mixed financial performance for the year. Given the results on these on the three metrics, the final realization on the financial metrics was 40.8%. For the realization of the financial metrics of the annual incentive for 2023, the supervisory board considered whether any adjustments or discretion should be applied. The supervisory board concluded not to make any discretionary adjustments to the performance outcome of any of the metrics, and the 40.8 reflects the final outcome of the financial components of the plan. The second component of the annual incentive plan relates to team and individual measures, as detailed on the bottom right-hand table. From an individual and team performance measure perspective, the supervisory board conducts an assessment at the end of the year relative to the objectives set for the year.
On the team objectives, as set at the beginning of 2023 and not adjusted, the results were also mixed. The highlight has been the progress relative to the customer Net Promoter Score, which increased by 6 points to 53 versus a target of 47, which represents a 9-point improvement over 2022. Additionally, the company made significant improvements in a key customer pain point of order and delivery, which improved by 13 points. From a culture and people perspective, the company's gender diversity continued to improve, and in 2023, there was a significant increase in campus hires supporting the objective of increasing our generational mix. The U.S. business is showing improvement, particularly with strong cash metrics, but performance remains below expectation. Finally, the needed restructuring was defined, structured, and communicated, which negatively impacted the employee Net Promoter Score, resulting in a decline of 10 points from end of year 2022.
For the individual goals, the outcomes were also varied. Cash optimization and inventory significantly improved, while quality and service levels were protected, as evidenced in the improvement in order and delivery and the customer Net Promoter Score. Growth was not as expected, although there were bright spots in our strategic frontiers, such as connected systems, solar lighting, and Li-Fi, while pricing discipline improved. Finally, the opportunities realized related to the Green Deal, in terms of the number and value of projects won, were very strong. The outcome of the overall assessment by the supervisory board on the team and individual objectives is summarized on this slide. The assessment was that it was a good performance, and a realization of 80% was determined for the team component and of the annual incentive, and 70%-90% for the individual objectives.
When the team and individual elements are combined, the weighted outcome across all the metrics for the annual incentive for the board of management members was between 15% and 17% bonus realization. With respect to the long-term incentive grant made in 2021, it has a performance period of three years that runs from the beginning of 2021 to the end of 2023. The grant vested the end of last month, on April 29th. As such, at the end of the performance period, an assessment is made relative to the targets set at the beginning of 2021. As with the annual incentive, it is important to note that no changes were made to the targets during the three-year performance period.
These were targets set mid-COVID-19 pandemic and before some of the impacts of the supply chain challenges had run their course, as well as prior to the global conflicts that have erupted since then. Additionally, the supervisory board did not apply any discretion to the achieved outcomes, nor to the corresponding realisation on these metrics. This then is the result of the performance over that three-year period. On relative TSR, total shareholder return achieved by Signify over the period was -10%. It positioned Signify as 14 out of 15 companies in our peer group. As Signify was not at a position of 8 or higher relative to the peer group, the resulting final achievement on this metric was zero percent .
On free cash flow over the three-year period over the three-year performance period, an amount of EUR 1.6 billion free cash flow was generated, representing 7.8% of sales versus a target of 9.8% and a threshold of 9.2%, resulting despite the EUR 1.6 billion in a final achievement of zero percent. On return on capital employed for 2023, ROCE was based on the outcomes in the last year of the plan period, excluding pension liabilities. The ROCE for 2023 was 7%, target was 14%, and threshold was 11%, also resulting in a final achievement of zero percent. Then, on sustainability. The sustainability objectives for 2023 were based on the intent to double our impact in the areas of climate action, circular economy, Brighter Lives revenue, and women in leadership positions by 2025.
In all areas, significant progress has been made relative to the trajectory delivered on the ambitions by 2025. Carbon footprint reduction actions are reflecting a steady decrease of emissions in Scope 1, 2, and 3, and on track with our 2025 ambitions, with 334 million tons of cumulative carbon reduction. Circular revenues increased, surpassing the 2025 targets two years earlier than projected. Brighter Lives revenue has exceeded the ambitions set for 2023, with an increase in contributions from circular products, systems, or services, and an increase in revenues coming from lighting innovations that increase food availability, safety, and security, health, and well-being. Women in leadership positions have increased by 12% from 2019 to be 29% in 2023, although this falls behind the trajectory needed to double the percentage of women in leadership positions by 2025.
Over the period of the LTI plan, Signify remained a leader in sustainability and continues to be recognized as such externally. We were featured in the Euronext AEX ESG Index, placing us in the top 1% of our industry, and we secured the inclusion in the Dow Jones Sustainability Index and the CDP Climate A-List for the seventh year running. Resulting final achievement was 141.7% for the sustainability outcome. The final total performance across the four measures is 35.5 for the 2021 long-term incentive grant. In 2021, the grants were awarded at a share price of EUR 43. The share price has declined in the three-year period. However, during the three-year period, the company has paid dividends of EUR 715 million.
In line with Dutch best practice of corporate governance, the members of our board of management hold all after-tax shares received for at least five years from the date of grant and internal and until the internal ownership guidelines are met. Then, moving on to the supervisory board fees. This slide details the fees paid to our supervisory board members. There are no changes to years prior. Then, on the outlook and overview of total direct compensation board of management. For 2024, salaries have not yet been adjusted. The supervisory board will review and determine any potential adjustments for the board of management once the collective labor agreements for the Netherlands population have been finalized. This discussion on the new CLA is currently still ongoing. Any salary increase will be effective, though, as of January 2024.
The figures for Mr. V an Engelen, who has stepped down as of April 1, 2024, and Mrs. Mariani, who will step down at the end of this meeting, represent the full-year total direct compensation potential. The incentives illustrated here on the screen relate to target levels and, therefore, what the total direct compensation would be for each board member if performance will be on target. This concludes my remarks on the remuneration report of 2023. Thank you.
Thank you, Gerard. As said earlier, we will respond to questions on this subject in agenda item five. We will now continue with agenda item three. Therefore, I would like to give the floor to our CFO, Željko Kosanović, for an explanation of the policy on additions to reserves and dividends. He will also discuss the dividend proposal that's on today's agenda. Željko, could you please brief us on these topics?
Thank you, Arthur.
Good afternoon, ladies and gentlemen. Let me start by saying that Signify will continue to exercise financial discipline in the generation and the use of cash. As part of our capital allocation policy, we continue to focus on free cash flow generation and maintaining a robust capital structure to support our commitment to an investment-grade credit rating. We will also continue to invest in organic and inorganic growth opportunities in line with our strategic priorities. Our dividend policy is to pay an increasing annual dividend per share in cash year on year. We propose a 2023 dividend of EUR 1.55 per share, a total of EUR 196 million, to be paid in cash in 2024. Now, let's discuss our net debt development in 2023. Our net debt decreased by EUR 285 million to EUR 1,071 million at year-end 2023, which was driven by strong cash flow generation.
At year-end 2023, our gross debt was EUR 2.23 billion, with the main debt instruments including EUR 1.275 billion of euro bonds, which are due in 2024 and in 2027, and also term loans consisting of EUR 502 million and $225 million, with maturities in 2024, 2025, and 2026. Our cash amounted to EUR 1.158 billion at year-end 2023, and we generated EUR 586 million of free cash flow during 2023. On top of our cash available, we also have a unutilized revolving credit facility of EUR 500 million. Thank you.
Thank you, Željko. Questions on the presentation from Željko will be addressed in the next agenda item. I will now move to agenda item four. Implementation of the new Dutch Corporate Governance Code in the company's corporate governance structure.
As you may know, the Dutch Corporate Governance Monitoring Committee published a new corporate governance code in December 2022. The new code applies to Dutch listed companies from the 2023 fiscal year and replaces the 2016 code. As with the previous code, companies must either comply with the provisions of the code or explain in their annual report why they do not comply with certain provisions. Although the new code has been changed compared to the 2016 code, it did not represent a drastic change in direction. We have already applied several new code provisions in practice. For Signify, the new code has not brought any major changes to our way of working. However, there has been some fine-tuning on a number of points. This concerns, for example, some adjustments to the regulations of the board and the supervisory board.
As you may have read in the annual report, we fully comply with all code provisions. This has also been confirmed by the external accountant. Naturally, we check from time to time whether our governance needs to be adjusted. In our opinion, the current governance model still fits well with the company. Questions on the topic may be addressed in the next agenda item. I will now move to agenda item five, which is the financial statements 2023. I'd like to kick off with some comments on the annual report 2023. The annual report, including the financial statements, has been available for inspection at Signify's offices and was published at the end of February 2024 on our website. It comprises a report of the state of affairs of the company during the last financial year. The financial statements and sustainability statements are integrated in one single report.
The financial statements have been prepared in accordance with IFRS, as endorsed by the EU. The financial statements have been audited by external auditor Ernst & Young, and on behalf of Ernst & Young, André Wijnsma is present, who has the end responsibility for the audit. Mr. Wijnsma will give a short explanation of the audit performed by Ernst & Young and on the statements from Ernst & Young that are included in the annual report. As in prior years, we released André Wijnsma from confidentiality. It means that he can explain the audit procedures that Ernst & Young performed with Signify. Now, I give the floor to André Wijnsma.
Thank you very much, Mr. Chairman. I'm not sure whether it will be short because I prepared some topics to be discussed based on an agenda, but I try to keep it at least concise. Indeed, I'm André Wijnsma.
Since 2021, I'm the external auditor responsible for the audit of the financial statements and the non-financial information of Signify. And, yeah, during this presentation, I would like to cover the following topics. First of all, our audit approach, then the key results of the audit being the key audit matters, then the communication with the company and those charged with governance, and last but not least, the audit plan 2024. But before I start with my presentation on the audit of Signify, I would like to give a short response in relation to academic integrity. EY and I personally regret the situation around integrity, considering the important role that we as auditors play in providing trust to the public at large. You can be sure that our investigation is very thorough but currently still ongoing and under legal privilege.
As a result, at this point in time, I cannot provide more details. But I have discussed this matter with the Supervisory Board during the year and also in preparation of this AGM. When our investigation is completed, hopefully this year, I will share the relevant findings of this investigation also with the Audit Committee for the Audit Committee also to be able to assess our response to the matter and the potential impact also on the audit of Signify. If appreciated, I can provide more details in next year's AGM when very likely the investigation will be closed and completed. To confirm to you as shareholders, personally, I always act with the highest level integrity in my role as external auditor. Then I would like to go to the audit of Signify.
The first theme that I want to discuss is our audit approach and the scope of our audit. The scope of our audit relates to the financial statements, consolidated and company-only, but also related to non-financial information based on the agreed scope with the Supervisory Board and extended in 2023 with the Scope 3 CO2 emissions. We also review whether the director's report is in accordance with Dutch law and is also in line with the consolidated financial statements. As mentioned, as external auditor, I'm the end responsible person for the audit, but I work together with a lot of colleagues here as auditors in the group audit team in the Netherlands, and we also make use of quite a lot of experts, for example, in the field of valuations, pensions, IT, cyber, forensics, treasury, tax, and remuneration.
For both the audit of the financial information as well as also the non-financial information, we involved independent quality reviewers. In Dutch is it called OKB, Onafhankelijke Kwaliteitsbeoordelaars. From planning to finish of the audit, and before I signed off, I received from both clearance on both opinions. In 2023, we performed again a site visit and were able to visit them physically. And then I personally went to Cooper in the U.S. and China, and I met with management, and I also visited warehouses and factories as well. And, of course, we took the opportunity to also look at the audit files of our colleagues, our component teams, to verify that they indeed perform the work as we expect them to do. For the audit of the in-scope locations abroad but also for all statutory audits, EY is the auditor of the company.
We also work with internal audit of Signify, and we share, of course, our findings of the reports and of our visits, but it's good to mention that we do not rely on their work. Our audit is based on the materiality level of approximately 4% of adjusted earnings before income, interest, tax, and amortization, which is also a very important key figure that Signify uses themselves, and that is an amount of EUR 26 million. The threshold for reporting all the differences to the supervisory board is EUR 1.3 million. For sustainability, materiality thresholds have been set per separate individual KPI. The execution of the audit is based on this materiality level and also based on the risk assessment that we have prepared at the start of the audit in 2023 in our audit plan communicated to the audit committee and, of course, updated during the audit.
We use data analytics for various accounts including revenue recognition, trade receivables, and cash. The estimates made by the company in preparing the financial statements are, in our view, reasonable and consistent, and we did not have any discussion on those estimates, and that is important as well for you to know as shareholder. The impact of climate-related matters is also considered in the financial statements, and especially related to the conventional business, this is also very transparently disclosed in the annual report. After completing the audit, no material audit findings were left to be booked in the financial statements, so that is also important to note. Then I would like to highlight the procedures we have performed during the audit in relation to three relevant themes in public at large related to fraud, going concern, and cyber risks. Let me start with fraud.
Fraud is high on the agenda of both Signify and EY. In cooperation with our forensic experts, we evaluated the fraud risks with respect to financial statement fraud and also misappropriation of assets. We evaluated the design and implementation of the internal controls designed to mitigate the fraud risks and also tested the operating effectiveness, including the code of ethics, screening of business partners, training, and incident management procedures. We assessed, in particular, revenue from sales of goods recognized at a point in time and then specifically related to cutoff as a fraud risk. In this respect, we assessed the appropriateness of accounting policies and obtained an understanding of the key controls. Also, we performed unpredictable audit procedures.
We used data analytics to identify exceptional and unusual revenue streams and patterns, and we also performed detailed testing on significant contracts to ensure that the revenue is recognized in the correct period. As Signify is a global company in multiple jurisdictions, we considered also the risk of bribery and corruption as an inherent risk. The areas in scope for these audit procedures relate to agents, distributors, gifts, travel and entertainment, sponsorships, transactions with governments, and new contracts. We also took notice of the incident management system of the company, and we assessed whether there were any incidents which could have more than inconsequential impact on the financial statements, and we also assessed the appropriate follow-up by the company.
Overall, in relation to fraud and non-compliance, we conclude that the company has a solid framework in line with the risk profile of and the global presence of Signify, and we here confirm that there were no material findings in the area of fraud and non-compliance. With respect to going concern, I can be shorter because we fully agree with the fact that the company also prepared the financial statements based on the going concern principles. Then last, the cyber risks. We performed procedures to gain an understanding of cyber risks based on interviews with key stakeholders, and we also inspected documents that we received from the company covering Signify's cyber risk management processes, incident management, and also monitoring and evaluating of the follow-up.
We also have taken notice of the reports that are being made available to the supervisory board and management board on a regular basis, and based on this, we conclude that risks related to cyber security are top of mind within the company within Signify. Then the second topic that I would like to highlight relates to the key audit matters, the key results of our audit. Let me start by the changes in the key audit matters compared to prior year. In 2023, the risk of goodwill impairment increased following a decrease in headroom in the annual impairment test and then especially for digital solutions. Therefore, we identified a key audit matter in 2023. We performed audit procedures and involved also valuation experts to verify the most important assumptions like, for example, the discount rates as well as also the forecasting in line with the strategic plan.
We also, where possible, compared these inputs in the model with external data sources. Overall, we concurred with goodwill positions accounted for as well as also the transparency of the disclosures made. The second key audit matter that changed relates to inventory valuation. In 2022, we identified inventory valuation as an important matter and as a key audit matter following high inventory levels and a lot of supply chain disruptions. And as this is more balanced now for 2023, we have concluded that inventory valuation is no longer a key audit matter in 2023. Unchanged key audit matters relate to revenue recognition, as I just already explained in our fraud paragraph, as well as also uncertain tax positions where we have involved our tax experts and focused on the management estimates. We concurred with the uncertain tax positions accounted for and the disclosures made.
For non-financial information, it is good to remember that for this year, 2023, still GRI is applicable and not CSRD, and that the company has their own reporting criteria related to Brighter Lives, Better World. Selected KPIs, which we also agreed with the Supervisory Board, are included in our scope, including impact revenues and carbon footprint. A new key assurance matter this year related to Scope 3, and it was also a reasonable assurance, as already mentioned earlier in this meeting, and it mainly relates to the footprint in the product phase of the company's products in the portfolio. It was possible because the company improved significantly on the data quality and availability on estimated wattages and lifetimes of the products in the portfolio.
Unchanged compared to prior year, we included a key assurance matter on the suitability and relevance of presenting non-financial information for the most material topics. We have carried out our assurance procedures related to specified information in chapter three of the annual report, being creating sustainable long-term value, and chapter four, Brighter Lives, Better World. Based on these procedures, we are of the opinion that the information presented is balanced, relevant, suitable, and accurate. There may be a few words on the preparation of the company's process in terms of getting compliant with CSRD. The company already prepared a double materiality analysis in 2023, and the outcome is also reported in the annual report 2023, and we fully concur with the most material topics that are mentioned in this double materiality analysis also as a baseline for preparation for CSRD in 2024.
Further, Signify completed its gap analysis to become CSRD compliant in 2024, and real actions have been defined to close the gaps. In preparation for CSRD, Signify also provided information on CSRD in chapter 17 of the annual report voluntarily. Important to note also for you that the above information was not part of our assurance scope, so we looked at it from an ISA 720 review procedure related to other information, only related to the CSRD information. Then, yeah, we completed our audit on the 27th of February, and we have provided the company and U.S. shareholders with a combined auditor's report, an unqualified auditor's report for the financial statements, for the financial audit, and reasonable assurance providing reliable and an adequate view for the non-financial information.
In addition, we have assessed that the full director's report, including the remuneration report, is in accordance with laws and regulations like the chairman already mentioned also earlier in this meeting. Maybe a few words on the communication that we have with the company and those charged with governance. Our reporting in writing to Signify relates to the audit plan at the start of the audit, our quarterly reporting on findings and also insights from data analytics, the audit results reports after the audit, and also our auditor's opinions, the combined auditor's report as I just mentioned. All reports are discussed with the board of management and the audit committee, and in February 2024, we have presented also our audit results report to the full supervisory board. During the year, we have very regular contact with the board of management and, of course, also with the group finance team.
We have attended all audit committee meetings, and after each and any audit committee, we have had executive sessions with the audit committee, yeah, after each AC meeting. In preparation of the audit committee meetings, I have one-on-one contacts with the chair of the audit committee to prepare for the meeting and to pre-discuss also the content of our report. Our communication and cooperation with the company is proactive and open, and we will feel free to make any comments. We feel no limitations. Our observations are taken seriously, and also the follow-up is in a timely manner. Then maybe a few words on culture and soft controls.
Even though we, as auditors, are not experts in culture and behavioral matters, and this was also not part of our audit scope, I can inform you that we take culture and soft controls into account throughout the planning, execution, and the conclusion phase of the audit. For us, the tone at the top is very important, considering example behavior, role clarity, transparency, speak up, and the way dilemmas are taken care of, and not only the tone at the top at headquarters but also in the companies below. Culture is regularly also on the agenda in meetings with the Audit Committee and the Board of Management, and we take notice of reports related to culture and people engagement surveys as well as also internal compliance reports, including the follow-up thereof. As I mentioned earlier, also in terms of culture, we feel free to make our comments where relevant.
Our view on the culture within Signify is that the company takes culture very seriously, including employee surveys considering the fact that the company is in a transformation, restructuring phase for some parts of the business. All in all, we notice the right tone at the top in working with us as the external auditor but also related to internal matters. Then last but not least, our audit plan 2024. We have presented the audit plan for 2024 for the financial audit already in the audit committee end of April. This audit plan for the financial audit is in line with the audit plan 2023. It is top-down and risk-based, and we have solid scoping. The key audit matters that we expect are similar to this year, and we expect for sure revenue recognition, uncertain tax positions, and valuations of goodwill to be important.
Of course, during the year, this audit plan can be updated in case of new developments, and one of the new developments for us, of course, is the organizational change where already the CEO mentioned earlier in the meeting the impact of. In our audit plan, we also mentioned the importance of preparing for the statement of risk. In Dutch, it's the VOR, the Verklaring omtrent risico, and that it is important to prepare therefore in 2025 and already make a gap analysis in 2024. With respect to our CSRD audit plan, we are currently in the process of completing the scoping. We have, together with the company, identified which are the relevant themes from the double materiality analysis, which are the relevant ESRSs, as well as also the data points related to that, and at this point in time, we are closing that process.
For sure, we will report our CSRD audit plan in the audit committee of July 2024. There will be a lot of focus during 2024 also on CSRD compliance. Dear shareholders, I thank you for your trust in Ernst & Young Accountants as group auditors of Signify, as well as also this opportunity to present our audit in your meeting. Thank you for your attention. Mr. Chairman, back to you.
Thank you, André. Ladies and gentlemen, we now come to your questions on the topics mentioned under the agenda items one through seven. Who may I give the floor? I will first give the floor to the gentleman on the second row because he requested to be the first, and that was granted.
Yes. Good afternoon.
Ladies and gentlemen, I was here five years ago, and due to corona—
Could you start mentioning your name and, if possible, the organization, if relevant?
Yes. My name is Robert Vreeken from We Connect You Public Affairs and Investor Relations. I'm a proud member of the VBDO and the VEB, and the ambassadors of the VEB and VBDO will add interesting remarks, for example, that at the moment, there are more than 1 million plants and animal species that will disappear from our planet. And it's a very, very important remark. And what's more important is that I love the Philips family. My shares of Signify have a return of less than 20%. My shares of Philips have a return of less than 20%. My shares of ASML have a return of more than 2,300%. And yesterday, I was at the AGM of ASMI.
Today, De Telegraaf, the largest newspaper in the Netherlands, mentioned that there was a shareholder at the AGM who had a return of more than 5,000% on his shares. I was the shareholder. So I think that Mr. van der Poel, with an ASML background, and Mr. Gerard van der Aast, with a KPN, NS, and RELX background, it's good to have a new challenge. For me, the target for Signify in 2024 is a return of more than 10%. It's easy to do so because investments in sustainability will triple to EUR 600 billion in 2030. How can Signify benefit from this exponential growth with new divisions? I have two interesting innovations for upscaling this. For example, the WakaWaka.
The WakaWaka is a personal solar light, and if you upscale that worldwide, it's excellent for the Signify image, and it's good for many people who don't have light in this world. Another thing is, and I discussed this 5 years ago, there's the Upfall Shower. It's a circular shower. It saves 80% on water and energy while you take a shower. And the important thing of the Upfall Shower is that it has a UV light to disinfect the water. So the price of a UV light is around EUR 100. That's quite expensive. So there's an enormous market for Signify. What's also important is to create a stable climate, all the gentlemen and ladies. On the other side, the Americas, Africa, Europe are now hostage to Russia, China, North Korea, and Iran.
This is a very toxic combination worldwide, which we have to neutralize because now with AI, it's even getting worse. Furthermore, in the field of sustainability, it's important to create Signify or Philips or ASML forests. The more forests we create in the world and you invest, the better it is. Finally, pensions. In the Netherlands, we have more than EUR 1,500 billion in pension funds, and 90% is invested abroad. In Sweden, it's necessary, it's required to invest 40% in the own country. So you can altogether create that we have to invest more than 25% in the Netherlands. That's excellent for Signify. So these are my, oh, finally, Hans Wijers, Tom de Swaan, and Feike Sijbesma are in favor of what I'm proposing here: to invest more than 25% of all the money in the pension funds in the Netherlands.
So these are my remarks and questions, and I think that Signify can do much, much better.
Thank you very much. These were, I would say, remarks or suggestions rather than questions, but Eric, you'll definitely have a few viewpoints on these.
Yeah. Thanks for the comments. You know, I think we can always do better. We're already doing quite a bit. You know, I think that in the past years with the Green Switch, what we call Green Switch, which is the Green Deal in Europe, but also Infrastructure Investment and Jobs Act in the US, there were a lot of investments that were made towards sustainability and what I would call most sustainable and energy-efficient infrastructure.
We benefited from it, you know, in terms of road lighting applications, but also solar lighting applications, where, you know, in some cases, we just have the mechanical pole on which we are just putting an integrated luminaire with the solar panels, the battery, and the light source, and with the sensor, which is also helping biodiversity because at night, when there's no movement, we dim down, and when there is movement, we dim up, which is charging and loading less the battery and at the same time allowing biodiversity. Look, we are doing a lot on climate. You've seen that our Scope Three, which is integrating, and that's the biggest part of it, the Scope Three, which is our customers' emission. We now have reasonable assurance on those numbers.
We granularly, you know, evaluate how our products are contributing to make our planet a better place, and we are reaching the objective, which was to reduce by 40% in 10 years, which is the objective of the Paris Agreement, but instead of doing that in 10 years, we do that in 5 years, and we are on track to achieve that. Now, when it comes to, you know, the investments, we're making investment, you know, worldwide, but we're substantially investing in the Netherlands, you know, in R&D. This is probably one of, you know, the biggest, you know, R&D centers that we have worldwide, but, you know, we can always do better. We're, you know, striving to do more, but we're already doing quite substantially.
Thank you, Eric. Next question.
Okay. Good afternoon. My name is Peter Fortuyn. I'm representing VBDO, so the Association of Sustainable Investors.
In fact, we represent, yeah, 80 pension fund professional investors over EUR 1,000 billion assets under management. We write reports. Every year, we publish a report where we assess the 40 listed companies in the Netherlands, and those are, in fact, very important for the investment climate, where we rate things like biodiversity, living wage in the supply chain, and those types of topics, and we sometimes assess them then as leaders or followers, and it is well read by the pension funds. Okay. So I have three topics. The first one is biodiversity. The second one is the living wage in the supply chain, and the third one is, yeah, the distance towards CSRD. So to start with biodiversity, we've seen your Nature Action Plan 2024-2028. It's published on your site right after the meeting we had with Maurice Loosschilder, but it was well received.
But we have two questions there. One question is, so you publish your sustainability three-year goals on page 60 of your annual report. This is really concise, really nice. But could you add also on biodiversity one or two lines or a KPI such that we can follow it, let's say, year on year, like indexed? And perhaps is it possible to enclose also how the supply chain is doing, your most relevant, let's say, supply chain in that area? We've seen that you have a plan for actions for your subsidiaries and how they can improve on biodiversity. Can you say what is the next step in that area?
You mean subsidiaries or suppliers?
No, subsidiaries. Your own, yeah, plans and, yeah. Okay. That's biodiversity. Then the second topic is living wage.
So what is your strategy for ensuring that, yeah, workers in your supply chain have a living wage? It's a hard topic. We understand that. But we hope that you are, yeah, able in the, let's say, now or in the foreseeable future, that what are the actions that a living wage is there ensured in a smaller or wider area of your suppliers? Okay. And the third topic is then CSRD. So what are the remaining challenges? So Ernst & Young reported that they take this into their audit approaches. We like that, obviously, but what are—and but we see many things that you already are reporting and disclosing. But what are the remaining gaps according to your vision?
You were looking to Eric Rondolat all the while, so I guess you know he's going to give the answers, right?
Okay. Thank you. Yeah.
Thanks a lot for the questions. So if you remember, last year, we had said that 2022 was the year where we conducted assessments on our own operations, and that in 2023, we would extend that to our full supply chain, which is including the suppliers, not only, also our customers through our product use phase. After that, we had committed that we would produce a biodiversity roadmap. So that's what you have effectively attached in this annual report. And this is a biodiversity roadmap for 2025. So if you look in more details, you have actions for 2024 and 2025 on the three dimensions: what we plan to do in our operations, what we plan to do with our suppliers, and what we plan to do at the level of our products, you know, in order to look at the use phase of our customers.
So there's quite, you know, detailed elements that I can come to, but you can see them, you know, in the report. What we plan to do is effectively to report on these actions on an annual basis. So you will get next year a reporting on how we are doing on these different elements that are all looking at diversity, you know, in many different ways. We're also looking at habitat creation, you know, which we know is one important element. Even if it's not material to us, we decided that was a subject that we needed to look into in more details, and you have that in the roadmap. Now, when it comes to beyond 2025, we're working on it at this point in time. So we have now a few ideas of what we could do beyond 2025, still looking at own operations, suppliers, and products.
We think that we're going to publish the results of that study and that plan next year. Living wages. So this is effectively a very, very important subject to us. So you know that we have been quite active, and in order to do that, we're also combining efforts with other companies. I think it helps us to have a more collective impact. So what we have done so far is that we are aligning with the Responsible Business Alliance Code to drive fair wages and benefits for workers at our direct suppliers, which means that if you are a supplier of Signify, you need to, first of all, sign our supplier declaration, which reiterates the RBA code obligations.
And when we conduct the audit, you know, that we have been conducting over the many years, one of the elements of the audit is specifically to look at that point: are our suppliers complying with this code of conduct? The code of conduct that I'm mentioning is interesting and important to fully understand because we're talking about a code which requires that compensation paid to workers is complying with applicable laws, you know, minimum wage, overtime hours, or other mandated benefits. Now, going back to your question, which is about living wages, because so far I've talked about fair wages, and we're doing a lot in that domain, but living wages is a bit more complicated. So what we're doing so far is that, still with the Responsible Business Alliance, we are participating in a task force on living wages.
And our strategy today is to synchronize our efforts with the RBA and the other participants, you know, in order to push the subject forward. And we are very supportive of the integration of living wage in what would be, you know, the next RBA code of conduct. But this is what we're specifically doing on that matter at this point in time. CSRD. So if we look at the CSRD at this point in time and the reporting standards, we're at 70% complying today, and we're going to be at 100% at the end of the year. So we don't see any compliance issue, but we see some challenges, and I think there's probably one specific challenge when it comes to the E5, you know, reporting standard, which is about resource use and circular economy. Why?
Because we need to find a way to define and efficiently measure the scope of material inflows. So you can imagine a company like ours, you know, with so many SKUs, if I look at an account, the material inflows that we have potentially, we talk about more than 100,000. So what we need to be able to do is to link those material inflows and the percentage of, you know, recycling content that they have and route that to the final product. So this is a massive effort that we have started to execute on. Well, our approach today is really to prioritize data collection, you know, and accuracy, which is imperative for our reporting. So, but if I take a bit of distance, we're going to be compliant at the end of the year, and that is probably the biggest challenge remaining, but we're working on it.
All right. Thank you very much, Eric. Next question. The middle row, the gentleman, and then the lady on the left from my side.
Although I'm perfectly confident that Monsieur Rondolat, among others, would understand me if I say, the French normally say, "Les honneurs aux dames." But I now apparently, which, of course, I'm very pleased with, take precedence over "une dame." My name is Armand Kersten. I am here on behalf of European Investors VEB. I should perhaps say that Mr. Vreeken, albeit that I was very pleased with his complimentary words about VEB, but doesn't act as a representative of VEB, at least not that I'm aware of. And that is not to say, by the way, that I would derogate on any of his remarks. Mr. Chairman, and of course also all the other ladies and gentlemen behind the tables, what are shareholders looking for?
Are shareholders happy with Signify? Not to strike too sad accord, one should be inclined to look at the markets and to look at what happens to the share price of Signify and to wonder whether, at least at this particular point in time, we can come to the conclusion that shareholders are, in the main, very happy with Signify. Having said that, what are shareholders looking for in a difficult time where we know that developments certainly, and by the way, we embrace this wholeheartedly, very much make companies have to look at non-financial targets and at their non-financial performance, at sustainability? We embrace that.
So with any of the remarks that I shall be making now, I am not trying to say anything that should make you doubt VEB's belief that we should go through a transition and that all contributions that can be made towards that goal are very important. But having said that, we come to, I think, the three key issues that I wanted to address. First of all, there is the very disappointing revenue, and therefore the key theme of the questions that I'm wishing, at least, to ask on this point are about the question: How is Signify going to generate revenue growth?
The second point is on remuneration in general, although this may be, to some extent, in anticipation of further points on the agenda, because a worry going forward is the allowances or compensations that are going to be dished out to leaving members of the managing board. And secondly, again, a typical financial issue, and that is: How is Signify going to reduce its net debt position? Now, first, on the revenue, how is Signify going to achieve revenue growth? One of the things that you've remarked, and one of the things that we know, is that revenue is disappointing, revenue growth is disappointing, in large part because one of the most important markets for Signify, China is not, whatever you call it, recovering as fast as we should all hope.
Almost tying in, and there is a huge overlap with, let's call it, corporate governance, let's call it strategy, is, of course, the question: To what extent companies, in the world as it is progressing, wish to be depending on China as a market and Chinese growth? For the simple reason, I think, that we all should have no—let's just call it—we shouldn't be dreaming in colors as to China's long-term objectives as a country and as a world power. So the dependence, the degree to which a company such as yours, albeit that perhaps we shouldn't be too worried that you're delivering products to China and the Chinese markets that might be too sensitive, but still, to what extent would you wish to be dependent on China?
Then, on revenue growth, we know, of course, that in the earlier capital markets days, in earlier capital markets days, you always gave projections on revenue growth and return on capital employed. With the most recent, the latest quarterly results, you didn't give us an outlook where these two areas are concerned. And we were wondering: Why do you opt not to give any such projections? And is it reasonable to assume that over the coming years the organic revenues will actually even become smaller? Then we see, and you have already been talking about it, this is, of course, also ties into remuneration, remuneration targets, that the free cash flow has improved substantially over 2023. But this was, in our analysis at least, predominantly as a consequence of a reduction in inventories.
And our question would therefore be: Does Signify expect that a further improvement of working capital is possible, or was this just a one-off sort of, even you could call it, a windfall effect? Then, on the second point I mentioned, remuneration, where I also mentioned allowances that are being made to departing members of the managing board. We are aware of the payment that's going to be made, the allowance to one of your members of the managing board who will be resigning just after this meeting. We were somewhat puzzled because so shortly after the position of CCO had been created, it now appears to be necessary to reorganise and to, in that regard, drive towards a reduction of the total composition of the management board.
We also know that there is apparently a dispute on what exactly should be the extent of the award to be made to Mrs. Mariani. And we would, of course, be curious, so that's a sort of sub-question, whether you can tell us more about that or is it still under wraps. But more importantly, are we going to expect to see such, again, such terms in employment contracts of future members of the managing board? And then finally, as I said, the reduction of the net debt position. You have mentioned that you were very happy that you have been able to reduce net debt because it's now just a tad over EUR 1 billion. But of course, and you are probably even better aware of it than I am, we all realize that when Signify was launched, it had a net debt position of EUR 341 million.
So we are now a considerable amount above that, well over EUR 1 billion. My question would be: Is Signify, does Signify have an intention to reduce the net debt position? As a sequel to that question, is Signify of the opinion that the balance sheet is solid enough? Thank you very much.
All right. Thank you very much. May I suggest we start with, of course, the first question, but Eric, that you address that one?
Yes. I think you're touching a very important subject. Growth is a key matter for Signify. I'm going to talk about China, but more broadly, since we have communicated, you know, on the last capital market day, it was in 2019.
The last four years have been quite, you know, tough and not totally symmetrical, you know, in terms when you look at the different economies, you know, we have to deal with. You know the story as well as I know it. We talk about a pandemic, we talk about supply chain disruption, we talk about component disruption, we talk about inflation, we talk about two wars. So in that environment that was very, very volatile, we have not been able to deliver a systematic growth. We have been able to do that two years over four. But globally, when we took, when we look at the position that we have, you know, at this point in time, the growth has been below our expectations. So it's not only China. Now, we're talking about China because China is our market number two.
It's a market which is quite fragmented, where our market share is below the average. So China should be a provider of growth for the company. But in the past years, it has been a growth detractor. So that's why we have been insisting on China. Now, could we manage our business without being in China? I think that at this point in time we are very invested in China, not only on the Chinese market, but also in terms of R&D worldwide, in terms of manufacturing, not only for China, but for the world. So our involvement in China is far beyond its market. So when we come to the second part of the question, which is more the growth outlook, look, we didn't give a growth outlook in 2023, and we didn't do it in 2024, for a very simple reason.
I think we were right in 2023, and at the end of 2024 we will see if we were also right in 2024, but what we see so far, we think it was an educated decision. Signify is operating on very different types of businesses: conventional business, which is declining. The consumer business, which is moving with consumer confidence; and I would say the professional business, which is, you know, in line with, you know, all different types of investments. At the same time, we are operating in very different geographies: Europe, U.S., China. When these economies are not all moving in the same direction, when all these businesses are not moving in the same directions, having a compounded understanding of the growth is complicated. So due to the volatility of the markets, we have not given an outlook in terms of growth.
By the way, the companies that did in 2023 had to come back, most of them, on their predictions given the volatility of the environment. Now, let's take the subject with a different approach. When you look at Signify, you have three components: 10% is conventional, and let's say that it's declining at between 20%-30%. So that's a drag between 200-300 basis points in terms of growth. You have 60%, which is LED, growing at market growth. If the market is growing at 3%, we are talking about 180 basis points of growth, which is not totally offsetting the negative impact of conventional. But then you have 30% of growth platform and connected, which is growing far above market growth, which can bring an additional 200-300 basis points.
So if you look at a market which is growing worldwide at 3%, the company has a growth profile, and that's what we indicated at the capital market day in 2019, because we were forecasting to have a much better market than what we encountered. Now, free cash flow: Yes, reduction of inventory was necessary. You may have followed, you know, the tendency. We had about EUR 1 billion, EUR 1.1 billion in inventory before the supply chain disruptions. When the supply chain disrupted, we have increased the inventory to above EUR 1.7 billion. And now we are back to the EUR 1 billion area, which was, you know, necessary, but also guided by the fact that the supply chain lead time, after expanding, has gone back to normality. So we have lost cash in 2022 very clearly.
We have recuperated part of that cash in 2023, which is expecting the results, but we still believe that there is a bit which still can be recuperated in the outer years. You know, we look also at our working capital as a percentage of sales. Before the crisis, we were between 3%-4%. We are still above 7%, so there is still some improvement to be done. But that is to give a bit of a highlight to the different questions that you have asked.
Thank you, Eric. Regarding the remuneration remarks you made, I invite Gerard to comment on those.
Happy to do so, Chairman. I think there were a couple of questions. First one was about compensation for directors that leave the employment of the company. We had two directors leave in the last couple of months.
One is about to leave at the end of this meeting. Mr. van Engelen left. He resigned at his own initiative. Therefore, no compensation was paid to him under his contract. In the case of Mrs. Mariani, we decided not to renew her contract, and under the terms of her employment contract, she is then entitled to a compensation of one annual salary. With regards to the disagreement that there is between Mrs. Mariani and the company over an element of the package, there is nothing new to report, as we already did in the annual report. Thank you.
Okay, and then Željko, maybe a few remarks on the balance sheet. How solid is it? Was basically the question.
Yes, thank you for the question.
So, yeah, coming back to the presentation earlier, when we mentioned about the focus, the continued focus on financial discipline in the cash generation, and as Eric just mentioned, the opportunities that we see further to improve our structural working capital levels in the continuum of the improvements we have seen over the past quarter is definitely an important part of our cash flow generation. Now, from the use of cash and coming back to our capital allocation policy, as was mentioned earlier, definitely a very strong focus on maintaining a strong capital structure and a strong, very healthy and healthier balance sheet, which means definitely looking at further deleveraging, right, which has been the case over the past quarters, and what we are going to focus on as part of the priorities within our capital allocation policy.
So no change from that perspective, from the focus areas that we had already indicated and fueled by a recovery on the structural free cash flow generation that we see coming forward.
Thank you, Željko. Then the question to the lady on the third row.
Hello. My name is Diana Trif, and I work for Robeco, and today I represent both Robeco and Triodos. Before asking my short questions, I would like to first thank Signify for the dialogue we have had so far on a broad range of topics. We really appreciate this dialogue and look forward to continuing going forward. Now, to my questions, if I may please ask a clarification regarding the disagreement mentioned before between Ms. Mariani and the company.
While we understand, there is no more information at this point to share regarding this disagreement. Could you elaborate on whether you implemented any changes to ensure that similar disagreements would not occur in the future? Another topic is related to the restructuring that was discussed earlier in your presentations. This restructuring has impacted 1,000 employees. We know, based on research, that downsizing the workforce by even 1% can lead to an increase in voluntary turnover in the next year of 31%. The statistics are quite staggering.
So in light of this, considering that your employee net promoter score significantly decreased following the restructuring agreement, and that retaining your key talent is a top priority for you, as you disclose in your annual report as well, could you reflect on any new initiatives you rolled out to ensure that the negative impact of the restructuring on your employees is mitigated? And could you also elaborate on the indicators through which you monitor the effectiveness of these initiatives? Thank you.
All right. Thank you. Regarding the first question, Gerard, a few remarks from your side that will be brief, I assume.
Thank you, Chairman. The question was: What have we done going forward? Not so much looking backward.
In the proposed new remuneration policy, as we will talk about in agenda item 10, it has been clarified that in case of termination of a service contract, unvested awards granted under the LTI plan shall forfeit unless the supervisory board decides otherwise, or in case of retirement, in which case pro-rata vesting will apply.
All right. That is the long and short of it. The other one, let's say, the impact of the restructuring on Net Promoter Score and what are we doing to mitigate, Eric?
Yes. So first of all, when we did implement the reorganization, we communicated a lot internally.
We also communicated directly to the people who were losing their jobs, you know, as quickly as we could, and communicating a lot with the people who were staying in order for them to understand what would be the new parameters of their responsibility if they were changing. We got, at that point in time, also internally a very positive feedback of our people on where the company is going from an organizational standpoint, so that new organization is really backed up and is liked by the people who, of course, are going to stay and to be part of that new journey. Now, we have effectively put in place, you know, additional measures, you know, as you mentioned. So one of them is specifically on the training of people managers.
We have dedicated training for people managers on how to apply people management in general in different shapes and forms. We are going to have 500 people trained before the end of the year and probably 1,500 people managers by the middle of next year, with the objective to motivate and stimulate, you know, the people who are working with them. We are also increasing the number of people who have access to our long-term incentive plan, and we are encouraging more and more people to be part of our share repurchase program. Something that is not new, that we have been doing all along, is also to promote as a priority internal promotion versus bringing people, you know, from the outside. The KPIs that we follow are twofold.
Of course, our attrition rate, which is in the mid-teens, and that is pretty much similar to other companies, so we have not seen here an increase, and we are monitoring it. The second one is our Net Promoter Score. You need to know that we do that every quarter. It is very statistical, and it is continuous, so we really can have a base of comparison. We are doing that every quarter with 80% response rate. It is very statistical because we have a very high response rate. Now, it has gone down now at 26% where we are today. If you look at the absolute value, it is still quite well positioned, but, you know, we are vigilant and we are monitoring those two indicators.
All right, Eric. Thank you. Next question.
Okay, I do not see hands raising, so then I would say thank you very much for your questions. Let us now explain the voting procedures, after which you can vote on the agenda items just discussed. Michiel, can you please guide us through the formal announcements and explain the voting procedures?
Thank you, Arthur. I will begin with some formal points on the voting. At the start of the meeting was present or represented a capital of 103,621,055 shares, entitled to 103,621,055 votes. In view of the number of issued shares that can be voted on, as at the record date, this means that 82.03% of the issued share capital entitled to be voted on is either present or represented at this meeting. Prior to the meeting, shareholders could exercise their voting rights by giving a proxy to the independent notary.
These votes were received by civil law notary Cindy Smits at Zuidbroek Notarissen. She is present at this meeting and has confirmed she shall cast the votes in accordance with the instructions that she received. The votes that she received will be taken into account in the electronic voting during this meeting and will be jointly reflected in the voting results. As a final point, the board of management and the supervisory board did not receive any agenda proposals from shareholders. Let me now explain the voting procedure during this meeting. Would you please now all take your voting device? You can enter your voting card with the chip facing you. When the vote opens, you will see a green LED light will light up in the left upper corner of the device.
If you do not see a green LED light, please raise your hand so we can assist you. You can leave the card in the device during the entire meeting. I see 1 hand raised here. And a second one. Yeah, yeah, correct. So we start with the voting and then if the light does not show up, okay. For the voting itself, to cast your vote, please press either one, two, or three. If you want to vote for a proposal, press one. If you want to vote against, press two, and abstain, press three. When you have made your choice, the LED light will turn off and your vote has been cast. If you wish to change your vote, press the red C button on the device and enter your new choice. The last choice will be recorded.
After the vote closes, the voting results will be shown here on the screen. I will then state the rounded percentage of the votes that were cast in favor of the proposal. The voting results will be published on the company's website after the meeting and will be included in the minutes of the meeting. That concludes my remarks, Arthur. Back to you.
Thank you, Michiel. We will now then start the voting, and the first proposal that you can vote on is on agenda item two. It is the advisory vote on the remuneration report 2023. The voting can start, and you can now cast your vote on agenda item two by selecting the vote of your choice. As said, one is for, two is against, and three is abstain. And if your device does not work, raise your hand, please. Yet. Yep. You are good? Sorry.
Ladies and gentlemen, so the voting can now close. And the screen will show the voting results, and 96% is in favor of the proposal, which means that the required majority for this proposal was met.
I thus conclude that the remuneration report 2023 is approved. We will now go to the next voting item, and the proposal on which you are going to vote now is from agenda item five: Proposal to adopt the financial statements for the financial year 2023.
The procedure is the same. On the display of your voting device, you can see the three choices. One is for, two is against, and three is abstain. The voting is open. The voting can close. And as you can see, 99% voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is accepted and the financial statements for 2023 are adopted. I will now move to the next voting item. The proposal on which you can vote now is from agenda item 6: Proposal to adopt a cash dividend of EUR 1.55 per ordinary share from the 2023 net income.
The voting is open. You can cast your vote. one is for, two is against, and three is abstain. The voting is closed. As we can see, 99% voted for the proposal, which means that the required majority of the proposal was reached.
I thus conclude that the proposal is accepted and the proposed dividend is adopted. I will then go to the voting on item 6. This regards two voting items.
The proposal on which you can vote now is from agenda item 7A: Proposal to discharge the members of the board of management in respect of their duties performed in 2023. Would you now please vote on this proposal?
The voting has closed. As you can see, 98% has voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and that the members of the board of management are granted discharge. We then move to the second vote under this agenda item, which is 7B: Proposal to discharge the members of the supervisory board in respect of their duties performed in 2023.
You can now vote on this proposal. The voting is closed.
As you can see, 87% voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and that the members of the supervisory board are also granted discharge. We will now go to agenda item 8, which is the composition of the board of management. On the agenda is the proposal to reappoint Eric Rondolat as member of the board of management. The supervisory board is very pleased that Eric Rondolat is available for another term and recommends the reappointment of Eric Rondolat to the board of management in view of his performance and the importance of continuity in the ongoing transformation of our company. The proposed appointment is for a term of 4 years. Are there any questions about the proposed reappointment of Eric Rondolat?
I do not see any hands, so we will then move to the voting on this item. The proposal on which you can vote is from agenda item eight: Proposal to reappoint Eric Rondolat as member of the Board of Management.
The vote is open. The vote has closed. As you can see, 99% has voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and that Eric Rondolat is reappointed as member of the Board of Management. Eric, congratulations. This then concludes agenda item eight. We move to agenda item nine: The composition of the Supervisory Board. On the agenda is the proposal to reappoint two members of the Supervisory Board: Rita Lane and Pamela Knapp, and the appointment of Jeroen Drost as a new member of the Supervisory Board as from today.
As Rita Lane has already served two four-year terms and in accordance with the Dutch Corporate Governance Code, the term of her appointment will end at the closing of the shareholders' meeting to be held in 2026. The term of the other two nominees is for four years. As announced in December, Frank Lubnau is not available for a second term, and we thank Frank for his contribution to our board in the past four years, especially in the digital domain. When proposing someone for reappointment and appointment, we take account of the board profile, including diversity as well as desired expertise and experience. The supervisory board is very pleased that Rita Lane and Pamela Knapp are available for reappointment in view of their expertise and the way they fulfill their respective roles as members of our supervisory board, as we further explained in the agenda of this meeting.
Furthermore, the Supervisory Board has nominated and recommends the appointment of Jeroen Drost to the Supervisory Board in view of his extensive experience and knowledge in banking and investment activities across numerous industries. Jeroen Drost has been the CEO of family-owned company SHV Holdings since 2016, from which position he has retired in April of this year. Jeroen, could you please briefly introduce yourself?
Thank you, Mr. Chairman. Good afternoon, ladies and gentlemen, members of the board. Let me start by saying I am very honored to be nominated to join the Supervisory Board of this wonderful company. As mentioned, I am Jeroen Drost. I am 63 years old. I am Dutch, father of two boys. And in my working life, which ended indeed a couple of weeks ago, I have been involved in many, many sectors.
Lastly, as CEO of SHV, which is involved in a variety of sectors around the world. Before that, in 30 years in the financial sector, where I was mainly in business banking. In those years, I have been closely involved with a variety of sectors, companies around the world, and had the pleasure along the lines to live both in Holland, in London, and in Hong Kong, which helped me to develop also the taste for the different cultures and the need to do business around the world. I will use that expertise and experience hopefully very well on the board. As I said, thank you very much for your trust, and I look forward to the coming years. Thank you.
Thank you, Jeroen. Are there any questions about the proposed appointment of Jeroen Drost and/or the reappointment of Rita Lane and Pamela Knapp? Go ahead.
Yes, we would like to first thank you for the thorough disclosure you provide on the process that led to the proposals you mentioned before. And the Supervisory Board's skill and expertise matrix is very helpful for us to understand how you view the Supervisory Board profile. But we could not help but notice that only one Supervisory Board member is shown as having IT and cybersecurity expertise. Nonetheless, cyberattacks and security breaches are identified by you as a key operational risk in your latest annual report. And there is also globally growing scrutiny of the Supervisory Board's role in the oversight of cybersecurity risk. So for that reason, we were wondering if you could reflect on the Supervisory Board's role in the oversight of cybersecurity risk, including how often a board or a committee thereof receives reports on cybersecurity risk. Thank you.
All right, thank you very much. Indeed, cybersecurity is an important topic. As you can imagine, it is primarily addressed by Signify Security and Management. They take the first line of responsibility, of course, and the supervisory board supervises and advises on the matter. Now, at least once a year we have a session that's dedicated to really the recent developments in cybersecurity. We do that together with the company's roadmap and initiatives across the whole infrastructure. Then each quarter there is an update on the update of the cybersecurity topics. That is specific to the subject as such, but of course we are ingrained in the broader system of regular procedures, internal audit, EY review, et cetera. It's embedded in the larger control scheme of the company. Of course, you never know how good you are exactly.
This is an important topic, but you know the criminals are moving and improving their skills on a daily basis. So you have to be paranoid. You are never 100% certain whether you are completely safe. Because the moment you think you are, you no longer are. So we do realize this very much. But in order to judge how good we are in that process, we hired an external cybersecurity company in the year behind us. And you know we found with their feedback that we are doing, let's say, quite well. Better than many other companies, but as I said a minute ago, you can never be 100% certain. We also recognize that this is not a subject to be in the hands of just a few experts. It needs to be ingrained in the total company. So that's the general picture.
Regarding the expertise of the supervisory board. Indeed, last year you could find 2 people that ticked the box, so to say. But based also on feedback from shareholders, we have been looking a bit more into our competence matrix. So we said, why would we have 7 or 8 or 9 ticks per person? You know we are a quite capable group of people, but why shouldn't we focus on the 3 or 4 or 5 key areas of expertise? So in this case, in one of the members, particularly Pamela Knapp, who ticked the box last year, we said, maybe better not this year. So she didn't lose the expertise, but the other ones are more her prime expertise. Now, of course, the role of the supervisory board is not giving the answers. The role of the supervisory board is to ask the questions.
Do we feel comfortable? Is the process in place? Did we get the right advice? Et cetera. So all in all, we think with the expertise around the table, we are quite well positioned to address the topic that is indeed very important. And I say it for the third time because it's so important. And you are never 100% certain. All right. Thank you. Next question. Seeing... Sorry, it is on. Let's move to agenda item nine A. There's the proposal to appoint Jeroen Drost as member of the Supervisory Board. Michiel.
So the voting is open. One is for, two is against, and three is abstain. The voting has closed. And as you can see, 84% voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and that Jeroen Drost is appointed as member of the supervisory board. Jeroen, congratulations and welcome to the team. The proposal on which you can vote now is from agenda item 9B, proposal to reappoint Rita Lane as member of the supervisory board.
The voting is open. The voting is closed. 84% voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and that Rita Lane is reappointed as member of the supervisory board. Rita, congratulations. The proposal you can vote on now is from agenda point 9C, proposal to reappoint Pamela Knapp as member of the supervisory board.
The voting is open. The voting has closed. 80% voted for this proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and that Pamela Knapp is reappointed as member of the supervisory board. Pamela, congratulations. This then concludes agenda item nine, and we move to agenda item ten, the remuneration policy, board of management, and supervisory board. This agenda item concerns two separate voting items. The proposal to adopt the remuneration policy for the board of management and the proposal to adopt the remuneration policy for the supervisory board, which policies were adopted by the shareholders' meeting held in May 2020. The first voting item concerns the proposal to change and adopt the remuneration policy for the board of management. The main changes to this policy relate to the annual cash incentive and certain leaver arrangements.
A further explanation with regard to this proposal has been included in the agenda, and the proposed changes to the policy and LTI plan are part of the meeting documents for this shareholder meeting. For this first agenda item, I will now give the floor to Gerard van der Aast, Chair of the Remuneration Committee. Gerard.
Thank you, Chairman. Ladies and gentlemen, as described earlier, our current remuneration policy for the Board of Management was introduced in 2020. It was therefore time for a full review of the policy in light of Signify's evolution as an independent organization, the evolution of market practices and developments in corporate governance, and importantly, the expectations of shareholders. During 2023, we undertook a detailed review of the remuneration policy for both the Board of Management and the Supervisory Board.
This review included an external expert, Korn Ferry, to challenge us, bring the evolution of market and best practices to the discussion, and provide overall expertise. As a component of the review process, we engaged with a large group of stakeholders of Signify. As I have previously mentioned, we invited 37% of our shareholder base to meet with Signify to discuss the proposed changes to the remuneration policies of the board of management and supervisory board. Ultimately, we met with shareholders representing 18% of the shareholder base, excluding passive investors. In addition, we met with several shareholder representative groups, and finally, we also met with the Dutch Central Workers' Council of Signify.
We had very valuable conversations with all stakeholders on the policy proposals, and while stakeholders have a diverging viewpoint, these discussions help to ensure that the policy proposal that we will discuss is balanced to consider all these different differing perspectives. I personally thank again all those whom we met for this valuable dialogue. Let's now shift our attention to the key points of the proposed remuneration policy for the board of management of Signify. The first one is a base salary clause. Naturally, let's begin with proposed changes to the clause related to how base salary levels are reviewed by the supervisory board. In the current policy, the base salary clause links very tightly to the collective labor agreement in the Netherlands for the CLA population.
As we considered a proposed policy that is reflective of our current company, this tighter link disconnects any potential salary adjustments from the non-CLA population in the Netherlands and from the rest of the employee population and general non-CLA salary practices. The CLA population in the Netherlands represents 6% of the total employee population. In addition, there is a part of the Netherlands' employee population who are not participants in the Dutch CLA arrangements. As we have seen in the last few years in the Netherlands, CLA agreements have included increases that have been significantly higher than in prior years given the inflationary pressure, but the magnitude of this trend does not hold true for the non-CLA population nor the global population, and increases aligned to the CLA agreements therefore seem less appropriate.
With these considerations, the proposed new clause continues to ensure that the CLA agreements are an important input into the review process. However, salary developments in the broader employee population are also an important consideration. Additionally, consideration is given to trends in a broader peer group salary development, and finally, consideration is also given to the board's member role and performance. The Supervisory Board considers this proposed clause to be a more balanced approach to the considerations that are part of the decision-making process pertaining to any potential base salary adjustments. Moving on to short-term incentives. Next, I would like to look at the proposed changes to the short-term incentives for the Board of Management. The current short-term incentive structure consists of a fixed percentage, 80%, which is determined based on financial metrics, and 20% that is determined based on team and individual performance.
The proposed policy change reflects shifting from a fixed percentage split of 80%/20% financial versus team and individual metrics to a range of between 75%-80% on financial metrics and 20%-25% on non-financial metrics. The purpose of this proposal is to enable the supervisory board to ensure a representation of the key priorities in the annual incentive plan within a narrow band. As the priorities for a particular year may change, this modest flexibility would enable adaptability to those priorities. For example, including and/or increasing the weight on ESG metrics, specific operational priorities, acquisitions and/or integrations, et cetera. The second item that represents a change in the proposed policy is regarding the choice of potential metrics to include in the short-term incentive in a year.
The current plan has a menu of financial metrics from a predefined list that include growth, such as comparable sales growth, profit, such as Adjusted EBITDA or net income, cash flow, such as average working capital or Free Cash Flow, and finally, investment return, such as Return on Capital Employed. The proposed change is that this predefined list is adjusted in two ways. The first is that the list has been expanded to include sales and cost as potential measures while maintaining profit, cash, and investment return as metric categories to ensure a good mix of potential financial measures for the plan in a year. The second adjustment is made specifically in response to stakeholder feedback. Feedback from shareholders and other stakeholders indicated that the inclusion of Free Cash Flow in both the annual and the long-term incentive plans was not desirable.
Free cash flow in both those plans were deemed not desirable. In direct response to that feedback, the proposed policy removes free cash flow from the menu as an example of potential financial metrics that may be selected for the short-term incentive plan. In addition, as Return on Capital Employed is also in the long-term incentive plan, it too has been removed as an example of a potential metric that may be selected to avoid any future duplication between the long-term and short-term incentive plans. Stakeholders and shareholders clearly told us they didn't want to see metrics equally in both plans, so you don't get paid twice for the same result, is the long and short of that. We have the leaver arrangements. The next element that includes a proposed change is related to leaver arrangements. As it pertains to this topic, there are two adjustments.
One related to clarification of leaver arrangements and the other related to the treatment of LTI grants at retirement. The topic was already mentioned earlier. With respect to the severance arrangements, and as with the current policy, any severance payment is kept at a maximum of one time the annual base salary. It is clarified, however, that there is no severance due in the event of a voluntary resignation or in the event of a serious culpable act or act of negligence. Our next change is one that also reflects the feedback of our stakeholders. Signify, as you know, is a company with a very long history and long-tenured employees. In many cases, employees have started and ended their careers with Signify and prior Philips. As such, the terms of the long-term incentive plan for treatment at retirement reflected that long-tenured employment relationship.
The current plan rules for all employees allowed retirees to remain entitled in full to granted shares in retirement. For the Board of Management, this approach also reflected the long-term nature of the decisions that they take as the key leaders of the company. We understand from our shareholders and stakeholders that they do not consider this a best practice and find it an undesirable element of the plan. In direct response to this feedback, the proposed policy and LTI plan for the Board of Management will adopt the vesting of the long-term incentive plan at retirement or early retirement, as the case may be, to reflect a pro-rata vesting for all long-term incentive grants as of the introduction of this policy.
Whereas the general rule is that unvested awards granted under the LTI plan will forfeit in case of termination of a services contract, the supervisory board will also retain the power to decide otherwise in specific circumstances. Finally, it should be noted that this change of the LTI treatment at retirement is a deviation from our Signify long-term incentive plan applicable to all other LTI eligible employees in the company who will remain entitled to the granted shares in full when they retire. That brings me to the clawback provisions. The final change that is being proposed in the remuneration policy for the board of management reflects the current clawback provisions. The current clause is aligned to the Dutch legislation and makes a general reference to the possibility to recoup incentives in circumstances set forth in the services contract with a board of management member.
The new policy clarifies that the clawback extends beyond Dutch legislation and includes the discretion of the supervisory board to recoup an incentive in case of a serious violation of the Signify Integrity Code or applicable law, or in circumstances allowing the company to terminate the contract for urgent cause. These terms are already included in the service contract of the board of management members, and as such, this change of provision in the policy therefore ensures alignment across both the policy and the service contract. That then brings me to the additional policy updates. This slide shows the updates related to the labor market peer group and the TSR peer group. Those are two different peer groups. The updates have taken place due to changes of the nature of the peer group companies themselves.
With respect to the labor market peer group, four companies have been replaced as of 2024. Boskalis, Siemens Gamesa, and Osram Licht have all delisted, and such must then be replaced in the peer group. ASML, on the other hand, has become an outlier overall, particularly from the perspective of market capitalization. As such, ASML is now much larger than Signify, and for that reason, they have been replaced also. The four new companies in our labor market peer group are Arcadis, Nordex, AMS Osram, and ASMI. The principles for selecting the labor market peer group remain the same as in the 2020 policy. Therefore, despite having a large operation in the U.S., the peer group remains focused on E.U. companies only and reflects a mix of Dutch cross-industry companies and European sector-specific companies.
As with the labor market peer group, the principles for determining peer companies for the TSR peer group remain consistent with the 2020 policy. There have been two changes to the TSR peer group. During the period of the policy, Cree became a pure-play semiconductor company when they sold their LED product business unit. Cree was replaced by MLS, who is a direct competitor of Signify in LED lighting. Finally, at the end of 2023, Toshiba was delisted. As a result of 2024, Toshiba has been replaced by AMS Osram, which operates in the lighting industry. That then brings me to the remuneration policy proposal for the supervisory board. I think we're going to do the voting after we also handle this, or do we do voting now?
No, no.
So as we said, we move now to the second you do the explanation for the two, and then we go to the voting. And then we do them both in one.
As it comes to the remuneration policy for the Supervisory Board, with respect to the remuneration policy proposed for the Supervisory Board, the review process did not result in the recommendation of any changes to the policy as adopted in 2020 nor to the levels of remuneration. The policy has been updated, however, to remain aligned with the policy of the Board of Management, including to reflect the updated labor market peer group, as previously discussed, and to reflect the fees for the Digital Committee, which was established in 2021. There are no changes proposed to the Supervisory Board fees.
Therefore, the fees shown on this slide remain as is and have not been adjusted since Signify became an independent company in 2017. This topic was raised by some stakeholders during our review process from the perspective that it would be appropriate to reconsider the fees given the length of time that has elapsed with no change. We recognize that perspective, but at this time, we are not proposing any changes to the current fee structure. This includes my remarks on agenda item 10 and 11 regarding the remuneration policies for the board of management and the supervisory board. Back to you, Chairman.
Thank you, Gerard. Are there any questions about these two proposals?
Thank you, Mr. Chairman. If you allow me, one question and one, let's call it, statement for the record.
The question is a very simple one, and that is the question: will there be a possibility that there will be an achievement and therefore whatever you call it, incentives? If the financial targets, all the metrics setting the financial targets, are not met, and the statement for the record is, as far as we are concerned, that is highly undesirable, if that were possible, because we believe that if the financial targets, the financial metrics, are not met, it would be almost, if you will, allowing too much discretion if hitting on non-financial targets were yet capable of triggering an incentive. Thank you.
So I invite Gerard to give his comments, but making the upfront statement, I think the reality of last year has proven that we have come with a very wise mix. But Gerard, maybe you repeat the numbers, right?
Yeah, well, the new policy does not have a provision that excludes any payment on non-financials if the financials are not met. So I mean, be very clear on that. You say that it is not desirable that that is possible. Well, we might have a different opinion there. Looking at the non-financials, in many cases, they contain very, very important items for the company. We also proposed, as part of the policy, to, under certain circumstances, increase the 20%-25%. And therefore, it would be inconsistent with the importance and that policy change to then say, if the financials are not met, there is no payout.
The second thing is that we, as a supervisory board, we have, I guess, a track record that was what the Chairman also was referring to, that we are extremely diligent in not going with all kinds of adjustments or discretionary modifications in any shape or form. We look at things as they are. We do not restate targets midway through. And when it comes to the final outcome, it is what it is. And we're also critical, and I then also refer to the remuneration report on personal and group targets for 2023, where there is also complete disclosure on what they were, what was achieved, and what was not achieved. But I think, with all due respect, I would disagree that it would be undesirable.
May I perhaps very briefly, at least try to be brief, on reacting to our difference of opinion?
Let me first start by saying I appreciate a different view, and let me also start by saying I understand, and we fully approach, when we're talking about VEB, the importance of non-financial performance criteria and the importance of performing on non-financial objectives and targets. We find that incredibly important. The reason why we believe it should, however, not lead to possibly gaining financial remuneration for achieving those targets is perhaps even a slightly philosophical one, and that has to do with, let's call it, purpose.
If we all agree, and I think we all agree in this room, that the social responsibility of companies would have companies see to and seek to set non-financial targets and seek to achieve those non-financial targets, then the term in itself, the targets are non-financial, should also make that those who are, whatever you call it, responsible and active towards achieving those targets feel personally motivated towards achieving those targets and to, in fact, achieving on those targets. In other words, they should not feel a desire from within themselves to be financially remunerated for those since they pertain to the social responsibility, the license to operate of the company, and their contribution to, if you will, it sounds a bit like a fad, a better world. Thank you very much.
Thank you. Any further questions or remarks? If not, we move to the voting.
We start with the voting on agenda item 10A, proposal to adopt a remuneration policy for the board of management.
The voting is open. One is for, two is against, and three is abstain. The voting is closed. 96% has voted for the proposal, which means that the required majority for this proposal was reached.
I thus conclude that the proposal is adopted, and we move to agenda item 10B, proposal to adopt a remuneration policy for the supervisory board.
The voting is open. The voting is closed. 99% has voted for the proposal, which means that the required majority for this proposal was reached.
Thank you. That then concludes agenda item 10. We move to agenda item 11, appointment of the external auditor of the company.
So next on the agenda is the proposal to appoint PricewaterhouseCoopers as the external auditor of the company for a term of three years starting January 1st, 2026. As explained in the agenda, the company started the tender process to select a new external auditor for the company to be appointed. This extensive process was led by the supervisory board's audit committee and involved setting the selection criteria, which are further explained in the agenda: meetings with key business leaders, workshops per domain, and presentations to the audit committee and board of management, which led to the recommendation to the supervisory board to appoint PricewaterhouseCoopers as external auditor. The decisive factors to select PricewaterhouseCoopers were their experience in the lighting industry, strong collaborative mindset, and competitive fee proposal. In addition, we have also discussed the exam fraud matter with PwC. It does not result in an action for Signify.
The NBA, which is the Dutch Association of Chartered Accountants, asked audit firms like PwC to review the quality controls of the exam processes, and these investigations are currently ongoing. Relevant in this context is to note that PwC will be audited as of 2026. It is expected that by then the investigation on this topic has been finalised. Therefore, with those insights, PwC will be able to select the right people for the audit of the 2026 statements. On behalf of PwC, Rinesh Dwarkasing is here today. He'll have the end responsibility for the audit, subject to PwC's appointment by this shareholders' meeting. Rinesh, could you briefly introduce yourself?
Yes, thank you, Chairman, and good afternoon, everyone.
It's a pleasure for me to introduce myself and our global team, which is ready and has been lined up to do the 2026 audit for Signify, both the financial audit as well as the non-financial sustainability audit. I'm Rinesh Dwarkasing. I'm 24 years working at PwC as an auditor. I have audited several companies, mainly in a listed environment like Signify and also in the multilocation and multinational environment as well. Like the Chairman mentioned, it was quite an extensive process over the past year.
It took around five months where we had a good opportunity to meet a lot of people within the Signify company and that allowed us also to make a really tailor-made proposal that also fits the transformation that the company is going through, allows us to also apply our tools that we have in our audit and bring an innovative audit, also aligning and leveraging from the systems that Signify has in place and the shared service centers that are globally available. In the proposal, we've also shown during the process that we will be candid in our feedback. We will be skeptical and also help the client to also grow towards the future. Personally, and also Dennis Stichter is here who will support me as an audit partner, I think it's very great that we have the opportunity to work with a company like Signify.
We experience as quite diverse as a team also at their end and very professional. Now, like André, I will also be here at the AGMs from 2026 to give you insights in how we performed the audit, what the results were of our audit, and also answer the questions you might have. In the meantime, as it will take a couple of years still, we will make sure that we remain independent at the moment that we take on the audit and also be able to do a good transition so that we have a jump-start when we are ready to go. So we're looking forward to that. With that, I hand it back to you, Mr. Chairman.
Okay. Thank you, Rinesh. Are there any questions about the proposed appointment of the external auditor?
Thank you. Thank you.
We did have some questions related to the exam fraud issue, but the clarifications provided so far have been helpful. But if I may ask a question related to a key assurance matter identified in the 2023 annual report, in particular, we took note of the fact that the auditor noted that the assurance engagement considered the risk of sustainability information being presented too optimistically. At the same time, companies around the world are under a lot of scrutiny over greenwashing concerns. Against this backdrop, considering your disclosure on circular revenues and Brighter Lives revenues, could you clarify whether you plan to enhance your disclosure on how you measure the positive impact of your products, systems, and services?
Okay. Thank you. Eric or Eelco or Željko? Eric? Okay.
This is a method that we are experiencing since 2020. We started quite early on.
If you were looking at how we measure Brighter Lives revenues and circular revenues, we go very granular in order to have accuracy on the data that we extract. This method has been validated, and we got reasonable assurance from EY over the many years. We think we have a very robust process in order to do that. We will continue that we have these two objectives going from 16%-32% based 2019 and objectives in 2025. We will continue to measure it in the same way. Of course, there are evolutions of regulations that we are following. At this point in time, of course, we're continuously improving. Our reporting and accuracy, regulation like the EU taxonomy or the CSRD are evolutions that we follow.
We use more and more established tools like the lifecycle assessment to understand what is the impact of our products on the environment. Lately, we have also given the information that we have been able to publish in March 2024 EPDs, so environment product data. And that's for about 70,000 of our SKUs, which is covering most of our LED products. So at this point in time, we have a robust process. We're going to continue to report in that way and adapt to the oncoming regulations.
Thank you. If I may add a remark, I think for us, what is important to understand is whether the products, service, and services you include under the Brighter Lives revenues bucket need to meet certain parameters so as to be included there. And I think that information would be helpful for other investors as well.
Understood. They do. We'll see how we can disclose it.
All right. Thank you very much. Then we can vote on agenda item 11, proposal to appoint PricewaterhouseCoopers as external auditor of the company.
The vote is open. And the vote is closed. And 99% is in favor of this proposal, which means that the required majority is reached.
I thus conclude the proposal is adopted and that PricewaterhouseCoopers is appointed as external auditor of the company. And this then concludes agenda item 11. We move to agenda item 12, which is the authorization of the board of management to: a) issue shares or grant rights to acquire shares and b) restrict or exclude preemption rights. And both under the conditions as stated in the notes to the agenda. So, as you understand, this agenda item comprises two voting items that will be voted on separately.
The authorisations are requested for a period of 18 months, effective as of today. These authorisations are customary with listed companies. The requested authorisations are for a single 10% of the issued share capital. The board of management regards this to be sufficient to efficiently finance the company. Each of these resolutions by the board of management requires approval from the supervisory board. Are there questions about this agenda item? We'll move to the voting. The proposal to authorize the board of management to issue shares or grant rights to acquire shares.
The vote is open. The vote is closed. 97% has voted in favor of the proposal, which means that the required majority of the proposal was reached.
I thus conclude that the proposal is adopted and the authorization granted.
We will now proceed to the second voting item, which is 12B, proposal to authorize the board of management to restrict or exclude preemptive rights.
The vote is open. The vote is closed. 86% has voted for the proposal, which means that the required majority of this proposal was reached.
I thus conclude that the proposal is adopted and the authorization granted. This brings us to agenda item 13, which pertains to the authorization of the board of management to acquire shares in the company under the conditions stated in the note to the agenda. The authorization is requested for a period of 18 months and is limited to 10% of the issued share capital as of today, plus an additional 10% of the issued capital in connection with the execution of share repurchases for capital reduction purposes.
A management decision to acquire shares requires the approval from the supervisory board. This requested authorization is also customary with listed companies. Are there any questions on this subject? If not, we move to the voting. The voting is under agenda point 13, proposal to authorize the board of management to acquire shares in the company.
The vote is open. The vote is closed. 99% has voted for the proposal, which means that the required majority for this proposal was reached.
I thus conclude that the proposal is adopted and the authorization granted. We move to agenda item 14, cancellation of shares. This agenda item proposes to cancel shares under the conditions set forth in the notes to the agenda.
It concerns the cancellation of shares that the company holds or acquires under the authorizations of the previous agenda item, to the extent that these shares are not used for equity-based remuneration or to fulfill other company obligations. The number of shares that will be canceled shall be determined by the board of management within the limitations of the proposed resolution. This, too, is a customary authorization with listed companies. Are there any questions? If not, we move to voting proposal to cancel shares in one or more tranches as to be determined by the board of management.
The vote is open. The vote is closed. 98% voted for the proposal, which means that the required majority for this proposal was reached.
I thus conclude that the proposal is adopted and will now move to the final agenda item. This agenda item is for any final questions.
Is there anybody to whom I may give the floor? No? I see there are no further questions and therefore close the annual general meeting of shareholders. I would like to thank you for attending the meeting. For the people here in Eindhoven, may I ask you to hand in your voting devices and voting cards at the reception desk. As this concludes the shareholder meeting 2024, it also ends my role as Chair of the Supervisory Board. Before I hand over the Chair position to Gerard van der Aast, I would like to say a few words. At the end of this AGM, Maria Letizia Mariani will step down from the board of management and will leave Signify. Dear Letizia, throughout your career, you were closely connected with customers and markets. For many years, you have led the European Market Organisation.
When you joined the management board, your responsibilities included strategy, sustainability, and the conventional business. The subject of diversity and inclusion was very close to your heart. Your dedication and commitment was highly appreciated. We thank you very much for your contribution and we wish you well. Also, Frank Lubnau will leave us after this AGM. Dear Frank, you joined us in the Supervisory Board four years ago when we realized that we needed to make big steps in what we called the digital journey. You initiated and led the Digital Committee and contributed your expertise in this, for us, relatively new field. We've made quite some progress since then. We thank you very much for your contribution and role. We wish you all the best. As for myself, I will be stepping down after two terms.
I take the opportunity to thank management and my colleagues in the Supervisory Board for the way we cooperated. Any subject could be discussed in a critical and constructive manner. Signify is a company with a purpose. Particularly, its commitment to sustainability is something to be proud of. Gerard will take over my responsibility as Chairman. The role is in good hands. So I now hand over the Chair position to Gerard and wish him well leading the Supervisory Board.
Thank you, Arthur. Maybe a few words from my side as well. Arthur has served eight years as Chairman of Signify. While the history of the company goes back a long time, 133 years to be precise, one could argue what is then eight years.
The last eight years were very special as the company had to learn to stand on its own two feet after the IPO. Arthur has overseen this process and made such a huge contribution to the further future of this great company. I worked with Arthur seven years on this board. I have learned to appreciate his style of hard work, commitment, but overall, his wisdom. The company owes Arthur a big thank you. We are going to miss him and wish him well and all the best for the future. Now I would like a real round of applause for Arthur and the other colleagues that will leave us at the end of this meeting. Thank you for being here today. I'm looking forward to seeing you again next year. Thank you.