Signify N.V. (LIGHT) Earnings Call Transcript & Summary

[Interpreted] It is 2 o'clock sharp. Ladies and gentlemen, welcome. Because of coronavirus, this meeting will be different as compared to previous years. Health and safety of all of us are of the utmost importance to us, which is why we have decided to only allow our shareholders to attend the meeting virtually. And we will be abiding by the temporary legal measures that came into force late April. We very much regret it that we cannot personally welcome you at this meeting, and we're looking forward to welcoming you at the next general meeting, if circumstances so allow. But also, the situation here at the Board table is different than what you're used to. As you see, we only have a limited number of people present here. Next to me is our CEO, Eric Rondolat; our CFO, René Van Schooten; and our Chairman of the Remuneration Committee, Gerard Van de Aast. The other supervisory directors cannot attend the meeting, unfortunately, and the same applies to the people who we have nominated for appointment as members of the Management Board and the Supervisory Board. But you'll be able to become acquainted with them. Such as we also have a video message from Maria Letizia Mariani, proposed new member of the Board of Management, the same applies to the new members -- of the new nominated members of the Supervisory Board, Frank Lubnau, Pamela Knapp, and other members, Eelco Blok, Rita Lane and Jill Lee will be following the meeting via the webcast. Present here today are the company's secretary and the secretary of the meeting, Michiel Thierry; and civil law notary, Martin van Olffen of De Brauw. Oscar Jonker is attending the meeting as the auditor of the company of Ernst & Young. Before I give Eric the floor for his speech, I would like to make some remarks with respect to the practical proceedings. A number of shareholders have complied with request to submit questions prior to the meeting. We will be showing those questions under the relevant items of the agenda. We'll be sharing them on the screen, and we'll be answering them. We have received all these questions in English, and so we will also be answering these questions subsequently in English. You can also listen to the translation into Dutch on the webcast. Those of you who have submitted questions prior to the meeting, well, we would like to give you the opportunity to ask follow-up questions during the meeting. Should you wish to do so, I would request you to submit follow-up questions by sending an e-mail to [email protected], IR being the abbreviation of Investor Relations. This way, we will try to answer those questions during this meeting. The questions and answers that we discussed this afternoon will be reflected obviously in the minutes of the meeting. For practical reasons, I'll be sharing the voting results for all voting items at the very end of the meeting, and I'll be confirming which resolutions have been carried. The language of the meeting is Dutch, and you can also follow the webcast and -- of the meeting in English. We will be making minutes of the meeting in English. And in order to make these minutes, we'll be using an audio recording of the meeting. So I hereby open the General Meeting of Shareholders of Signify N.V. And it is my pleasure to invite Eric Rondolat to give his speech, and he'll be holding a speech in English.

Thank you, Arthur. Ladies and gentlemen, I propose we start by looking back on 2019 to see the progress we made in improving our business, developing new innovations and in making our company even more sustainable. Overall, 2019 was a year of strengthening our industry leadership amid economic challenges. We increased our LED-based sales to 78% compared to 71% in Q4 2018, an increase in our connected light points of 56 million compared to 44 million in Q4 2019. While our top line declined by 4.6% on a comparable basis, we increased our comparable LED-based sales by 1.4%. We lowered our indirect cost base by EUR 125 million as a result of continued rigorous implementation of cost reduction initiatives, thus improving our operational profitability by 30 basis points to 10.4%. We had a free cash flow of EUR 529 million, the highest level since our IPO. Our acquisitions in 2019 illustrate our focus on strategic growth areas and attractive markets. The acquisition of Cooper Lighting Solutions, Klite, WiZ, Once and iLOX are strategically sound moves that contribute to differentiating us structurally while enhancing our ability to serve our customers. In 2019, we were also ahead of our sustainability targets, keeping us on track to achieving carbon neutrality this year. Indeed, in 2019, we've made significant progress towards achieving the goals of our Brighter Lives, Better World program. On the revenue side, we achieved 82% of sustainable revenues ahead of our 2020 targets of 80%. On the operations side, we already source 94% of consumed electricity from renewables and are carbon-neutral in 15 out of our 19 markets. Our supply chain is 99% sustainable, well ahead of our 2020 targets of 90%, and 90% of our industrial waste is already recycled. Our 2019 sustainability results have also been recognized externally, notably as the industry leader in the Electrical Components and Equipment category of the Dow Jones Sustainability Index for 3 straight years in 2017, '18 and also '19. We've also been on the A-list of the Carbon Disclosure Project ever since our IPO in 2016. We continue to execute and made substantial progress on our 7 strategic priorities. We increased the share of LED lighting in our portfolio from 71% to 78% of total sales. We continue to drive systems growth, increasing the number of connected light points by more than 25% to 56 million at the end of the year. We further enhanced our Interact Indoor Navigation and launched Interact Smart Workspace and Interact Asset Tracking in order to build our data-enabled services offering. Our acquisitions in 2019 illustrate our focus on strategic growth areas and attractive markets. By acquiring a majority stake in Klite, we secured an independent supply chain in China and strengthened our position in the fast-growing private and branded label segments. And with the acquisition of Cooper Lighting completed in March 2020, we strengthened our position in the attractive North American lighting market. We have also maintained a strong free cash flow of conventional lamps at 19% of sales. We continued to digitalize and improve our commercial and supply chain processes, improving our average delivery reliability to our customers by 160 basis points. And lastly, we also improved our operational excellence with our adjusted EBITA margin improving by 30 basis points to 10.4%. Let me now describe our overall positioning at the end of 2019. We are the world leader in connected LED and conventional lighting. By providing light sources, luminaires, systems and services, we occupy a unique position on the value chain in the lighting industry. We achieved EUR 6.2 billion of sales in 2019 and reinvested 4.5% of that in research and development. We are continuously transforming our business while maintaining our position as the world leader in the lighting industry that is moving towards digital applications. In 2012, we generated just 22% of our sales through LEDs. By the end of 2019, we increased this to 78%, with a growing number of those being connected light points. And while in 2012 our adjusted EBITA margin was 4.7%, we improved this by 570 basis points to 10.4% in 2019, showing consistent year-on-year improvement and growth. Let me now take you through our performance in the first 3 months of this year. So we continue to increase the installed base of connected light points by another 4 million to 60 million. A strong management of price and significant cost savings in order to compensate for top line reduction allowed us to decrease our adjusted indirect cost base by EUR 56 million, a reduction of 11.1%. So these results are reflecting our adjusted EBITA margin which improved by 10 basis points and to 7.9% with a neutral effect from currencies and despite a 15.3% decline in comparable sales growth. We generated in Q1 a free cash flow of EUR 112 million, which was 57 -- which was, sorry, EUR 57 million higher than last year through a rigorous management of working capital. And on March 2, we completed the acquisition of Cooper Lighting Solutions. The integration is well underway, and our teams are on track to achieve synergies. We acquired Cooper Lighting for USD 1.4 billion on a cash and debt-free basis. This acquisition strengthens our position in the attractive North American lighting market with increased innovation power and more competitive offering. Cooper Lighting generated EUR 1.4 billion of sales in 2019, of which 84% were LED-based, and an adjusted EBITA of EUR 150 million. This major acquisition improves our business mix with our professional revenues increasing from 43% to 53% of total sales based on the 2019 figures. And in April, we successfully accessed the Eurobond market to refinance the bridge loan we obtained for this acquisition. Facing of the COVID-19 pandemic, we were very early in decision making, fast in execution, and we protected the physical health and economic welfare of our human capital. From the start of the outbreak, we have taken a very agile and thorough approach in dealing with the challenges through global and local crisis response teams. With our global manufacturing capacity being impacted, our early and quick response has helped to restore our capacity to above 80% during Q1. We have also implemented a broad range of mitigating actions to preserve our profitability and cash flow. These measures include savings in, among others, selling expenses, travel costs and procurement costs. We have also taken a range of actions to protect our cash flow, including rigorous working capital management, curtailing uncommitted and nonessential capital expenditures and withdrawing our dividend proposal. At the same time, our liquidity remains strong with a cash position of EUR 924 million at the end of the first quarter. And we also support local partners and communities by providing protective equipment such as hand sanitizers, masks and temperature measurement tools as well as supplying lights in hospital in Wuhan and Spain, for example. In Uganda also, we provided solar lighting to 20 health centers. Wherever we can, we help. We're also increasing our production of lamps for UVC radiation for sterilization and disinfection and exploring if and how we can accelerate the adoption of this technology. Now moving to the 2020 outlook. So considering the uncertainty about the future course of the pandemic and the length and depth of the impact on the global economy, we are not providing financial guidance at this time. But in line with our strategy, we continue to invest in 6 platforms for growth. First, professional systems. Signify has its Interact platforms, which are designed to control and handle the data collected from a large network of light points. As an example, Interact City remotely monitors and controls all city lights from 1 single dashboard. The sensing functions like motion, presence detection, tilt, vibration, ambient temperature and noise can be remotely configured and the data generated transported back to the software platform. To date, Signify has completed over 2,000 road and street lighting projects in 58 countries. Second, the smart home market. This is a market where we see a rapid expansion. Our highlights in 2019 include the launch of Philips Hue with Bluetooth, enabling direct light control from a smart device without the need of a bridge and providing consumers with an easy entry into the smart home lighting market. We also introduced Philip Hue Play, which is an HDMI Sync box, providing an easy way to synchronize all digital content with up to 10 Philips Hue light. It is compatible with movies, TV shows and games and complements screen action in the living room. In 2020 and beyond, we will continue to focus on retaining our market leadership position and expanding the reach, breadth and richness of the Philips Hue offering. Agricultural lighting is another expanding business that we are very excited about as it is a concrete response to the need and to help feed a growing world population. It includes, first, horticulture lighting, which enables plant growth all year-round with better predictability, quality and yield. Growers benefit from market-leading products and more than 150 light recipes. In 2019, we signed an agreement with AppHarvest in the U.S. to outfit their 25-hectare greenhouse in Morehead, Kentucky. But it also includes animal lighting, which contributes to sustainable animal farming methods, leading to healthier animals and enhanced production for the farmer. We are proud of becoming the main provider for aquaculture LED lighting for Australis Seafoods, supporting them to achieve sustainable marine-based fish farming in Chile. Now on to solar. We introduced hybrid solar grid systems that have a huge potential for countries with seasonal sunshine. In 2019, the solar business expanded to new markets for Signify in Europe, Latin America and the Pacific, in addition to our established markets in Asia and Africa. We expect to see this number rise as the market for solar is expected to grow by more than 20% per year until 2024. We also launched our 3D printed printing business. The material in typical 3D printed luminaires has a 47% lower carbon footprint, and it can be reused or recycled, supporting the concept of a circular economy. On top of that, 3D printing provides customers with unprecedented levels of flexibility, allowing them to choose and tailor existing designs, bringing their ideas to life in a matter of days rather than months. In the last 2 years, we have printed around 0.25 million luminaires. We are amongst the very few companies capable of doing this on an industrial scale. And last but not least, LiFi. So LiFi lets users make a 2-way wireless connection using light instead of radio waves. In 2019, we launched Trulifi, the world's fastest commercial LiFi system that provides highly reliable and secure high-speed wireless communication. There are already more than 100 pilots worldwide using Trulifi. Our partnerships include key internet service providers and agreements to provide LiFi in airplanes in 2021. We have realized the first installs in hotels, industry and military applications. This illustrates the large potential of this novel technology and the leadership position that we hold. In closing, I would like to extend my thanks on behalf of the Board of Management and the leadership team to all our employees for their commitment and dedication, especially in these extraordinary times. We also want to thank our customers for their continued trust and for whom we do this work. And finally, we want to thank our shareholders for the confidence and support they've demonstrated in our business and in our strategy, especially as we navigate this unprecedented pandemic. As we move on, we are continuing to progress on our transformation, and we'll continue to unlock the extraordinary potential of light for brighter lives and a better world. Thank you.

Thank you, Eric. [Interpreted] Well, thank you very much. Of course, everything Eric has told or talked about is connected to the remuneration report 2019, the annual accounts and the reserves and dividend policies. I would like to, therefore, tackle these subjects each separately and give explanations first. After explanations on the audit by the auditor of Ernst & Young, we will discuss the questions you have submitted. Let's start now with agenda item 2, the remuneration report 2019. This is a separate report which was included in the annual reports. The contents of the remuneration report 2019 has changed a bit with respect to earlier years. It is now in accordance with the recently implemented European Directive on Shareholders Rights. The report discusses today's remuneration policy for the Supervisory Board and the Board of Management. I'd like to hand over to Gerard Van de Aast, who is the Chair of the Remuneration Committee. He will discuss some key aspects.

[Interpreted] Thank you very much, Arthur. May I ask you to present the next slide? And this is where you see what the Remuneration of the Board of Management consists of 3 elements. First and foremost, a base salary and annual cash incentive and a long-term incentive with a term of 3 years. What else can I say about this? The base salary of this year has been increased by 2.5% for the Board. This is a comparable remuneration for -- with respect to the staff and employees of Signify. We were going to get back to that in one of the answers to questions pertaining to the cost reductions implemented after the -- or during the corona crisis, and that has its influence on the base salary of the Board of Management and reduces that by 20%. The next slide shows us the annual incentive with its 3 components. One is a financial one, sales growth, a metric for profitability and cash flow. There's a second component which is a personal component. This personal component consists of a number of aspects that the whole team shares, which is a joint goal and a couple of personal goals for the members of the Board of Management. Now the long-term incentive for 2019 still continues under the old plan. I will later like to indicate to you the changes that we have implemented, and we will see that back at various agenda items later on. The long-term incentive plan of 2019 contains 3 criteria: the relative total shareholder performance, TSR; the free cash flow; and sustainability. The next slide, please. This is where you can see where all of this led to with respect to the annual bonus. And extrapolating on what Mr. Rondolat just shared with you with respect to performance and presentation of our results, you will see that with respect to sales growth, there was no bonus allocated, then adjusted profitability or adjusted EBITA, 50% realized. We've also seen a good free cash flow. And here, the maximum has been allocated for their team and individual performances, which were valued at 100%. All of this combined means that the multiple achieved bonus is at 75%, and that this will indeed be paid out. This is what you see on this slide, and you see a sum for the individual targets of the Board members. All of this leads to an amount in euros indicating the annual incentive. In 2020, this year, we are looking at the very first year in which the so-called long-term incentive is finalized. This is a 3 years program, and this award was allocated in 2017. The term, therefore, spans the years 2017, 2018 and 2019. On this page, you can see what the result was, what actually was achieved with respect to the long-term incentive. First, with respect to the aspect, total shareholder return, achievement 100%. As a company, we did just as well as our peer group. The free cash flow, 3 years of 80% awards. And sustainability, a maximum of 200% was achieved. And that does not surprise, listening to Mr. Rondolat's explanations on the awards we've received in -- during 3 continuous years. The payout is 112% or the vesting level of the long-term incentive. The next page summarizes the remuneration of the Supervisory Board for 2019. I can be very brief here. Nothing was changed. You can see the payments for membership of various committees, other compensations for 2 of the members. This has to do with the fact that these 2 individuals live outside of Europe. And that brings me to the end of my presentation. I hand back to you, Arthur.

[Interpreted] Thank you very much, Gerard. We will now continue with agenda item 3. I would like to hand over to our CFO, René Van Schooten, for an explanation of the reserves and dividend policy. René?

[Interpreted] Ladies and gentlemen, I would like to start by saying that Signify will continue to observe strict financial discipline to generate and allocate its cash means. As part of our capital allocation policy, we will concentrate on generating free cash flow and maintaining a robust capital structure. Our priority remains deleveraging and retention of an investment-grade credit rating. We will furthermore use our cash to strengthen our business operations and prioritize deleveraging further. As our focus is on the integration of Cooper Lighting and the realization of synergies, future acquisitions will enjoy a lower priority. Our dividend policy is directed at the payment of an equal or higher dividend per share. To maintain resilience during these periods of market uncertainty and to further support the financial position of our company, we withdrew the proposal to pay out a dividend of EUR 1.35 per share. As soon as the market circumstances stabilize, Signify will review its capital allocation to shareholders. Again, let's have a look at our debt position in 2019. At the end of 2019, the total sum of cash amounted to EUR 847 million. Our gross debt position was at EUR 1.465 billion and consisted of term loans to the amount of EUR 740 million and $500 million. We refinanced these at the same amounts in January 2020. Our gross debt position increased by EUR 259 million as a consequence of the implementation of IFRS 16. At the end of 2019, that led to a net leverage of 0.9 calculated as the net debt position divided by the reported EBITDA. Next to our available cash positions, we could also call upon our revolving credit facility to the amount of EUR 500 million. At the end of 2019, therefore, our net debt position was at EUR 618 million, an increase of EUR 29 million compared to the year before. In 2019, we generated EUR 529 million free cash flow. We paid EUR 164 million dividend and also paid a net amount of EUR 80 million for acquisitions. Since the end of the year, we have taken steps to refinance the financing means we had since the IPO. This refers to the so-called IPO term loans where the debt is replaced by new term loans which indeed lapse after 3 and 5 years, and this at the respective same amounts for a total of EUR 740 million and $500 million. Recently, we have achieved access to the Eurobond market. This was used to refinance the bridging financing that we received for the acquisition of Cooper Lighting. We did this by means of a bond of EUR 675 million with a term of 4 years as well as a bond of EUR 600 million with a term of 7 years. Now before we continue with the next agenda item, I would like to stand still and discuss one of the areas of interest of the Dutch Shareholders' Association, VEB. The VEB calls upon stock market companies to indeed offer transparency not only in their annual accounts and results, but also in the publication of their half year figures, their liquidity forecasts, their financing and outlook as well as the sustainability of goodwill and provisions. VEB would like to insist upon the importance of this information and would like to see it researched by auditors and an auditor's evaluation report to finalize the half year figures. And furthermore, VEB asks the auditor to issue a continuity statement on the basis of half year figures. Now our external auditor, EY, has been involved in the audit process of the company. They have weekly contact with the company. They are involved in all external quarterly reports and half yearly reports, for example, by studying the consolidated information for all quarterly publications, by asking senior management about specific topics. Each quarter, EY discusses its findings with the CFO, the Management Board and the Audit Committee. We are of the opinion that the underlying risks have been sufficiently covered. We, therefore, do not find it appropriate at this point in time to follow up on the request of the VEB.

[Interpreted] Well, thank you very much, René. We would now like to continue with agenda item 4, the approval of the annual accounts for 2019. We will then also discuss 5a and 5b. Let me make a few preliminary remarks about the annual report, which, including the annual accounts, was for your perusal at the offices of the company and published on the website of the company. There is also a report about the course of business at Signify in the past year. Furthermore, a sustainability report was included as well. The annual accounts were based on IFRS. Everything was audited by Ernst & Young. Mr. Oscar Jonker is present. He was responsible. He will give an explanation and also explain the opinion by Ernst & Young. Mr. Jonker, you have the floor.

[Interpreted] Thank you, Chairman, for inviting me to explain our audit at the general meeting. My name is Oscar Jonker, Ernst & Young accountant. And since 2016, I'm the auditor of Signify N.V. This is the fourth time I'm addressing you. And on the 21st of February 2020, I issued an unqualified opinion of the audit to the annual statements and sustainability information of the company for the financial year 2019. I'll briefly explain the audit and the key audit matters. The audit plan for the fourth audit year was discussed with the Audit Committee and the management in April 2019. In our audit of the financial statements, we applied a materiality of EUR 25 million based on results before taxes and adjusted for incidentals. Materiality indicates the threshold for misstatements that we consider to be acceptable as auditors. All stated misstatements in excess of EUR 1.25 million were reported to the Audit Committee. As a group auditor, we determine the scope of our audit per group unit, and also, the local EY teams have been instructed in terms of the nature and the depth of their audit. And we audited 39 units in 16 different countries where local teams conducted local -- the local audits. And I myself visited China and the United States. The key audit matters were the following: the process of revenue recognition, particularly with respect to the delimitation of sales, revenue and also valuation of goodwill in view of the complexity of estimates with -- in that -- with that -- in respect thereto and the relative size of goodwill; and the valuation of active deferred taxes, also in view of complexity and the estimates. Key assurance matters specifically for sustainability information concern the criteria that were applied for reporting sustainable sales and also the estimates and assumptions with respect to the definition -- or the determination of the reduction of CO2 emissions as part and parcel of the value creation model. In our opinion, you'll be able to find details and further explanations with respect to these key audit matters. In testing the internal audits and automated data processing systems, we did not find any significant issues. In our risk analysis, we take into account the risk of material misstatements as a consequence of fraud. For the audit in Signify, we used forensic accountants in our risk identification and in the implementation of the work carried out. And we also assessed and evaluated the management -- the Board of Management's report. And this year, we specifically focused on the implementation of the shareholders' directive and the impact on reporting with respect to remuneration, which is a new requirement. And our conclusion is that this report of the Board of Management complies with the requirements. We're in touch on a weekly basis with the corporation, and every quarter, we discuss our findings with the CFO, other members of management and the Audit Committee. We spoke to the Audit Committee 6x in this year, once per quarter, once in December in order to give an update on the status of the audit and also, finally, in February, to discuss the financial statement. And we also talked to the Audit Committee in the absence of management. And throughout the year, we also were in touch with the Audit Committee outside the regular meetings. Just a brief remark with respect to COVID-19. Based on our audit, we reached the conclusion that the time in which the audit statement was issued, which was February 25, 2020, the assumptions of management and the explanation provided based on the information available at the time were acceptable. After drafting the financial statements, obviously, a situation can arise in which -- that the company couldn't, for no reason, to take into account in drafting the financial statements further spread of coronavirus and the impact of Signify is an element that obviously -- is an element that the management is focusing on and why we'll, in future orders, take that into account, obviously. The conclusion is that the fourth audit year of Signify has been successfully finalized. And I hope I've been able to provide you further insight into the activities as external auditor of Signify. Thank you.

[Interpreted] Thank you. Ladies and gentlemen, we can now proceed to answer a number of questions that were submitted prior to the meeting. We received questions from the VBDO, this association of investors in sustainable development, the association of stockholders, VEB, Triodos Investment Management that is also representing Eumedion at this shareholders' meeting and also APG Asset Management. I'd like to give the floor to René first so that he can answer the first questions. And as I said, we will be dealing with all questions in the English language. René?

The first question is from Triodos Investment Management together with Eumedion. Let me try to summarize the question. The first question is about our increased leverage following the acquisition of Cooper Lighting and whether we'll need to take additional measurements to lower leverage. We have implemented quite a large range of extra measures to safeguard our cash flow, including rigorous working capital management, a curtailment of uncommitted capital expenditure and, of course, the withdrawal of our dividend proposal. On top of that, we are accelerating and extending mitigating measures. Just to name a few, the Supervisory Board and the leadership team took a 20% salary deduction for Q2. A significant part of our employees voluntarily supported a 20% work-time reduction and pro rata pay adjustment for a period of 3 months, a 6-month delay in merit increases where possible and an external hiring freeze. We are closely monitoring the situation, and we will take a necessary -- additional measures if necessary. As pointed out before, our liquidity is strong with a cash position of EUR 924 million at the end of Q1. It remains our attention to maintain a robust capital structure and it is our policy to prioritize future deleveraging. Let me then go to a big version of that question. The second question from Triodos, Eumedion is about the level of leverage that we feel comfortable with and how we will get to this level. As pointed out, our ratio was 0.9x at the end of 2019. This, of course, went up as a consequence of the acquisition of Cooper. And it remains our aim to bring the leverage below 1x net debt divided by EBITDA to support our commitment to an investment-grade credit rating. Then let me go to the second question and I summarize it again. The question is about liquidity, and the question is whether it may be more difficult for us to obtain additional liquidity as a result of the higher leverage. As said before, our starting position in terms of liquidity and cash, with EUR 924 million at the end of Q1 2020, is strong. On top of that, we have a committed EUR 500 million currency revolving credit facility with a maturity of 5 years so until January 2025 and the option to extend that twice by 1 year at the end of the first and at the end of the second anniversary. To date, we have not drawn any amount under this revolving credit facility. On top of that, we have recently accessed the eurobond market, and this bond was significantly oversigned by high investor demand. That will also provide us a new way of getting access to liquidity. Let me then go to the third question. This is a question from the VEB again. Let me summarize it again. It's about scenarios and stress tests as a result of the coronavirus pandemic. Signify has worked out different scenarios and stress tests as a result of the coronavirus pandemic. Considering the uncertainty about the future course of the pandemic and the length and depth of the impact on the global economy, Signify does not comment on the expected impact on our financial metrics. Let me then go to question #4. The question is from the VEB again and it's about the risk of breaking -- or breaching our covenants. The first thing I would like to say is that because we have at least 1 but we have actually 2 investment grades that their covenants are not applicable at the moment. We have worked out different scenarios, as I said before, and we take the appropriate actions to limit the impact on profitability and cash flow and to adapt in a fast and agile manner. We think that even in a stretched situation, we don't anticipate a breaking of the covenant. We are very confident that the underlying resilience of our operating model and our capability of generating cash flow is sufficient. Our focus remains on maintaining a robust capital structure and our policy to prioritize future deleveraging to support our investment-grade rate position. Let me then go to question #5. This is a question from the VEB, and it's about the impairment of goodwill and why the downward adjustment of the key assumptions for the Professional segment did not result in an impairment of goodwill. Overall, there was no impairment identified in the impairment test in 2019 as the combined input of all variables, including the mentioned compound sales growth rate, showed significant headroom. It's Signify's view that the changed approach on the terminal growth rate in 2019 -- in the 2019 model is more in line with market practice. Furthermore, as disclosed, there was no significant impact on the headroom from this change in our approach of calculating the long-term growth rates. This also has a version B of the questions again from the VEB. It's about the risk of an impairment due to the worsening market condition. As part of our 2020 quarter 1 closing procedures, the company performed an analysis which did not indicate an impairment. It should be noted that there are significant uncertainties in the current economic environment. The company will therefore continue to monitor the COVID-19 situation closely and continue to update its impairment analysis based on the most recent information available, including the forecast. Version C of this question. The VEB asked what we mean by reasonable possible change with regard to the key assumptions for the Professional segment. A reasonable possible change in key assumptions is derived from the accounting standard IAS 36. It means that the company, based on information, does not foresee any realistic change to lead to an impairment. Only an extreme scenario, not considered reasonably possible, will lead to a level of 0 headroom breakeven or even an impairment. Let me now go to question 6. It's about the funding status of our pensions given current market changes. The impact of the current market turmoil on the net liabilities position is relatively small. If the liabilities would be remeasured at the end of April, their values would be at a similar level as at the beginning of the year before the COVID-19 crisis started. Our largest funded plan is in the U.S. The plan didn't suffer any investment loss, thanks to a well-diversified investment portfolio and interest hedge. Let me go to question 7. This is a question from APG. They asked why our net debt-to-EBITDA ratio of close to 2x, which was communicated in October 2019, was so different from 2.7x net debt divided by EBITDA that was reported at the end of the first quarter. The net debt-EBITDA at closing of around 2x, which was communicated on October 15, was based on a pro forma result and including 12 months of EBITDA from Cooper. At the end of Q1 2020, our net debt-to-EBITDA ratio was 2.7x but now only included 1 month of EBITDA from Cooper Lighting as we successfully completed the acquisition on March 2, 2020. Version B of this question is again from APG, indicates that Signify targets to lower its net debt-to-EBITDA to below 1 within 3 years, and this suggests free cash flow generation of more than EUR 500 million per year. We don't comment on the specific assumptions, considering the uncertainty about the future course of the pandemic and the length and depth of the impact on the global economy. Signify doesn't provide financial guidance on -- at this point in time. Point C from the APG about Cooper Lighting and whether they've become eligible to the royalty payments Signify has to pay to Philips every year. Payments under the trademark license agreement with Philips are contractually limited to products which are sold as Philips brand. Products sold by Cooper Lighting do not fall under this contract as they are not sold as Philips branded. That was the last question I would comment on.

[Interpreted] Okay. Thank you, René. The next series of questions is for Eric. Eric, to you.

Thank you. So let's go to question 8. So it's a question from Triodos, Eumedion. So this question is about our recent Cooper Lighting acquisition and the fact that a competitor has suggested that this would create unrest among the agent networks in the U.S., resulting in the loss of market share. So it is -- the agent networks are very important in our go-to markets in Northern America, U.S. and Canada. When we did the acquisition of Cooper Lighting, there's a key integration principle, which is that the existing part of Signify and Cooper Lighting will maintain their front-office independence so we will not disrupt their respective agent networks. And I believe that this principle is mitigating the risk which is mentioned here. Let me now go to question 9, which is a question from the VEB about our market position in the professional lighting market in the U.S. after the Cooper Lighting acquisition. So through the acquisition, Signify has significantly expanded its position in the attractive North American professional fixture lighting market and we are now the #2 player in this market. Let me now take it to question #10. So this question is from APG and it is about the acquisition of Klite. They, first of all, asked whether the company was in financial distress when it was acquired. Secondly, they indicate that as Klite is a large acquisition, it should have been communicated in a better way. And they would like to get a better understanding of the price paid and clarification of the implied valuation. So first of all, let me tell you that Klite was not in financial distress and didn't have to be rescued in order to safeguard its supply to Signify. All in all, it was a minor supplier to Signify in China. We have communicated the strategic rationale but let me do it once again. It's a very important strategic acquisition for us because it is making Signify less dependent on its supply base in China. And by bringing some of the volumes that we have in other suppliers to Klite, we are consolidating the margin of these suppliers, while at the same time, Klite offers to us the possibility to attack the market of private labels in the world and making us more competitive in order to do so. Third, we are not disclosing the amount of the transaction, but what we can say is that it was fully complying with our return on investment metrics. Let me now move to question #11. So this question is from the VEB, and it is about R&D and whether we are confident that we spend enough on R&D to stay at the forefront of technological developments. So we have been investing in 2019 4.5% of our turnover in research and development. In doing so, we are spending much more than any other lighting company. And if you remember my presentation, we talked about some of the pioneering technology that we are bringing to the market, not only in terms of systems for professional usage or for consumers but also horticulture, 3D printing, LiFi, solar. So as you can see, we are bringing pioneering technology still to the lighting market, which is illustrating our innovation leadership. The next question is the B part of the same question, still from VEB, about the way we measure efficiency of R&D spending. Well, there are many different metrics that we use. So we look at it project by project, and every project is measured on its achievement on the planned time originally. It's also -- we also look at the budget that we spend by program according to what was set originally. And we also look 1 year after commercialization on the achievement of the business plan that was brought in for the project originally again. So a different set of metrics that have been moving in the right directions in the past quarters. Let's move now to the next question. This is question #12. So this question is from the VEB, and it's about the business group plans and how much further we can continue the rationalization of our manufacturing footprint. So let me remind that in 2008 we had 45 factories. At the end of 2019, we have 13 manufacturing plants for convention land. So we've been very proactively adapting our footprint to the market. And we believe we have, moving forward, the flexibility to continue to do so, adapting to the changes that we will have in front of us. Let me move now to question #13. So this question is from the VEB, and it's about the growth and profitability of our business group Home. So Home has been, in 2019, quite contributive from a top line perspective. It's been growing at 11.3% with a positive adjusted EBITA margin of 3.8%, but it was a big relative contribution versus 2018 when the profitability was negative. So we believe in that business, where we have a very strong leadership position. And we have already seen in 2019 that it can deliver growth and profitability, and we believe it is a meaningful profit driver for the future also for the group. Let's move now to question 14. So we have 2 questions in question 14 so let me take the first one. So it's a question from VEB about the 20% voluntary work-time reduction of our employees and the pro rata pay adjustments and whether we stick to the plan as some labor unions are protesting. So first of all, the scheme that René has explained of supporting a 20% working time reduction has been successful as 85% of our employees are participating. I would say that the vast majority of them to the full extent. So we had to discuss and have a very close consultation with not only our works council but also with the unions. And we have very positive and constructive discussions of the unions who wanted to make sure that this plan will be fully complying with our labor agreements. And this is what we have done with them. The second part of the question is about the NOW government compensation scheme. So after careful consideration and study of the conditions for this program, we have decided not to apply to the NOW program in the Netherlands. Let me now move to question #15, which I believe I will share with Gerard. So let me take A and C, and Gerard will take B and D. So the A part of the question is about whether we will continue to prolong the pay cuts after Q2 2020. So what I would like just to mention is that we are talking about pay cuts for the Supervisory Board and the leadership team. But when it comes to the rest of the population, it was a voluntary scheme as we have explained previously. So we targeted Q2 because we knew that in Q2, we would be seeing the overlap of the 3 waves of the countries that are impacted by COVID-19: the wave of the country in Asia, wave 1; Europe, wave 2; and Americas, wave 3. This is why we decided to act on Q2. The visibility that we have for Q3 is not sufficient at this point in time so we have not made any decision. You'll hear analysts as well as I hear them telling us that Q3 should be better than Q2, but this is as far as we go up until now. If decisions have to be made, they will be made later on. Now the part C of the question is about the state aid and its potential impact on variable compensation. Well, I've said previously that we will not be applying for the state aid in the Netherlands. Gerard, the rest is for you.

Thank you, Eric. The question is if the voluntary pay cut will affect variable compensation. The answer is no. Having said that, it is very obvious that as targets were set before the COVID-19 prices that it will be much harder to achieve the targets. Then the next question was, how do we calculate the number of shares that are being awarded under the LTIP program? Based on the existing LTI policy, the number of performance shares and/or conditional shares are granted based on the 3 months' average closing share price preceding the date of grant. Date of grant would be tomorrow. So calculating 3 months back, you see quite a variety in the share price coming from well over EUR 30 to the level that is today. So the average of that 3 months determines the number of shares.

[Interpreted] Thank you, Gerard. Could you also answer question 16 since you're a member of the Audit Committee? Thank you.

It was Eumedion and it's about the report from the Audit Committee and whether we could provide more details about our findings from the evaluation of the functioning of our external auditor. We have an annual process for this. So also in 2019, we evaluated the functioning of the external auditor. This was important for us in particular this year as we have to decide to extend or not the contract with EI -- E&Y or start a tender process. We've had a number of interactive sessions with EY to discuss on how to even further improve the efficiency and effectiveness of the external audit. The outcome of this exercise has led to the proposal for reappointment of EY for the period 2020 to 2022. EY, as a result, changed the composition of the team, increased the usage of data analytics and enhanced the coordination of the statutory audits. Thank you.

[Interpreted] Thank you. Gerard. It's from VEB and relates to the interactions between management and the Supervisory Board concerning our businesses in the Kingdom of Saudi Arabia and India. These discussions were in-depth presentations on the developments in those geographies. We discussed macroeconomic developments and their impact on Signify. In these sessions, we specifically addressed, one, the challenging market conditions we faced in these geographies; two, local and central actions which were taken to address these conditions; and three, longer-term projections. Without going in further detail, it shows that our Supervisory Board is closely involved in Signify's business developments and provide support and advice on such matters. And this is closely related to another question that came in from VEB and that Eric will address.

Yes. So that is effectively on question 18. So it's a question from the VEB about the improvements we have made in the Saudi operations. So in the risk chapter of the annual report 2017, it was mentioned that Signify, in respect of its operation in Saudi Arabia, is working on the remediation of weaknesses identified during the internal review. In the annual report 2017, this matter was also mentioned as a key audit matter in the auditor's report. In the annual report 2018, we mentioned that in respect of the operations in Saudi Arabia, the company continued to work on the remediation of weaknesses identified during the internal review. KSA has made improvement on overall governance and risk management, which is evidenced by a positive internal audit report in year 2018. As a result of the mentioned improvement, this item was no longer included as a key audit matter in the auditor's report of 2018. So the measures mentioned in 2018 continue to be effective in 2019. And compared to 2018, there are no relevant updates to report.

Thank you, Eric. [Interpreted] Ladies and gentlemen, prior to this meeting, the VEB, in addition to its question, also highlighted a number of points of attention and requested us to respond to these issues at the meeting. And you'll see those issues now on the slide in front of you. Yes, there we have them. The second item with respect to an additional review by the auditor, well, René, the auditors -- this has been discussed earlier on: number one, waiving the variable remuneration; and three, decreasing the number of Board positions. These are issues that will be discussed later on. The fourth item is climate responsibilities. I'd like to give the floor to Eric. And after that, he will also share a remark that we received from Triodos, Eumedion. Eric, please.

#19?

The general -- yes. No, sorry, that was 18. The general comment on...

On the VEB?

On the VEB, yes. Okay. [Interpreted] Climate obligation, climate commitments. These are interrelated. Eric Rondolat.

The VBDO. So the question 19 is about whether Signify could provide insights into the potential contribution of the company's products on the availability of food and clear -- clean air and water. So advances in agriculture are needed to increase food availability. And today, 35% more food is assessed as a need for the whole population. In 2030, we will need to increase our food production by 35%, while at the same time, 25% of the people experience food insecurity. Our lighting solutions increase food availability and enable more sustainable food production through higher yields, quality and nutritional values. Our solutions reduce environmental impact with less dependency on the external climate compared to convention like agriculture. For example, 40% lower CO2 greenhouses with LED, less food miles -- food waste and 90% less water use in vertical farming. To give an example, whenever we are applying our horticulture lighting to tomatoes growing, for instance, we can improve the yield by a factor 3 to 5. If we talk about vertical farming, it can go up to 11 to 15x while consuming only 5% of the water that would be consumed in normal farming. When it comes to air and water, we have a technology of UVC lamps that are disinfecting water but also surfaces and the air. So you can imagine that at this point in time, these are technologies in which we are investing and they're also disrupting the DNA chain of virus, making them ineffective. Let me now move to question #20. So this question is from VBDO about labor condition in supply chain and how we are collaborating with other companies that are a member of the Responsible Business Alliance, RBA, contributing to improving labor conditions in the supply chain. So you know that we are auditing many of our suppliers, our risk suppliers, 99% of them. We don't only audit Tier 1 suppliers but we also sometimes audit Tier 2 and Tier 3 suppliers with which we have a contract. And we share regularly with other members not only our processes, the methods by which we do the audit but also the results of these audits. But we also partner to reach deeper supply tiers. So for instance, we formed the fair cobalt coalition with an RBA member called Fairphone to improve labor conditions for small-scale cobalt mines. And that's an example where we would reach even deeper tiers. I would like also to mention that in our 2025 sustainability program, which we will be communicating later in the year, we will further strengthen targets on social impacts for our supply chain. Let me now move to question 21. So the following question from VBDO is about diversity and whether Signify is willing to analyze the gender pay gap for the company's workforce and report on this in the annual report 2020. So we see that gender diversity has remained flat over the past 3 years, making it for us a clear area of attention. And we are therefore increasing our efforts here through our diversity and inclusion board, women for more program, succession planning and mentoring programs. But I would like to say that we are totally committed to equal pay for equal work. And in 2019, we did a pay equity analysis by country, gender, function and grade for 25,000 employees in 79 countries and 3,000 different groupings, and we did not find any statistically significant disparity in pay.

[Interpreted] Right. Thank you, Eric. And those are the questions pertaining to agenda items 1 through 5. So with that, I'd like to close these items on the agenda. And as I indicated before, I'm going to show you the voting results at the very end once we've dealt with all the items on the agenda. Agenda item 6, the reappointment of the current members of the Board of Management, Eric Rondolat and René Van Schooten. The Supervisory Board has full confidence in this Board of Management. Mr. Rondolat shows strong leadership and plays a crucial role in the transformation of Signify. Mr. Van Schooten is making an important contribution in operational improvements and the implementation of the new operating model with which Signify is being simplified and also the restriction of overhead costs. It's particularly under these challenging circumstances that we attach great importance to continuity in the continuous transformation process. Supervisory Board is therefore very pleased that Mr. Rondolat and Mr. Van Schooten are both available as members of the Board of Management. And as I have announced, just to be complete, I'd like to highlight that Mr. René Van Schooten has temporarily taken over the role of CFO. And this has got to do with the fact that Stéphane Rougeot has left us. Stéphane has left our company for personal reasons, and we are very grateful for his dedication and commitment to the company and his contribution to the transformation process. As soon as we find a successor, we will inform you in accordance with the due process. Furthermore, the Supervisory Board, after consulting with the Board of Management, has made a binding nomination to appoint Maria Letizia Mariani today as a member of the Board of Management for a period of 4 years. She's a current division leader for conventional products, Chief Marketing Officer and Head of Strategy of the company, and this -- and before that, she was market group leader for Europe. I would like to give her the opportunity now to briefly introduce herself to you by means of the prerecorded video message that we're going to show you right now.

I'm Maria Letizia Mariani, I'm Italian, Chief Marketing and Strategy Officer and Head of Commercial Products at Signify. Before, I was responsible for the business in Europe. I'm also a member of the Supervisory Board of Prysmian Group, leader in the cable industry. In my 10 years with Signify, and previously, 20 years in the IT industry, I have learned how to drive transformation. And I have also learned how to focus on finding the opportunities that are hidden in every challenge. Now let me add also something that you cannot easily find in my CV. By giving birth and raising my twins, I have learned a lot about efficiency, about care, about listening and about diversity. And these learnings, I always keep with me in my professional life. Listening is the basis for care when you engage with customers and with employees. Creating an environment that is diverse and inclusive makes all the difference while you improve efficiency and drive the effectiveness of your action. This is me. And I'm looking forward to joining the Board of Management of Signify. Thank you.

Thank you, Maria Letizia. [Interpreted] Now I'd like to refer you to the agenda for further information about Maria Letizia as a nominated candidate. So with that, we're concluding this item of the agenda. We don't have any questions. The next agenda item pertains to the composition of the Supervisory Board. We would like to propose the reappointment of 2 members, Rita Lane and myself; and the appointment of 2 new members, Mr. Lubnau and Mrs. Pamela Knapp. There have been sufficient explanations in the agenda and for each of these appointments and reappointments. There is an appointment term of 4 years. Because this agenda item pertains to my own reappointment, I would like to request Gerard Van de Aast as Deputy Chair to take over the Chair of this meeting. Before, though, I hand over, I would like to discuss the proposed reappointment of Rita Lane and the appointment of Lubnau and Mrs. Knapp. With respect to the appointments and reappointments, the Supervisory Board, indeed, looks into the profile of the Supervisory Board as a whole and diversity policy as well as the necessary expertise and experience in the Supervisory Board. Therefore, the reappointment of Mrs. Rita Lane is in compliance with all of this. Her experience in supply chain and operational issues is very relevant. She has been, furthermore, already had a membership in our Supervisory Board and has shown her expertise there repeatedly. We are very happy that she is available again. We are also very happy to propose Frank Lubnau and Mrs. Pamela Knapp as members of the Supervisory Board. Frank Lubnau is Chief Technology and Excellence Officer at ISS. His expertise can be very valuable in the area of digitalization of our operational processes. Mrs. Pamela Knapp was a CFO of the Siemens Power division for many years. And until 2014, she was CFO at Gfk. Her extensive international management experience and financial expertise will be very valuable for our company. And as you've probably already read, we announced earlier that Jill Lee, as of the 31st of July, will step down from the Supervisory Board voluntarily. We are very happy to now have found in the proposal of appointing Pamela Knapp a very, very able successor as a Chair of the Audit Committee and to take over from Jill. I'd like to hand over to Frank Lubnau and Pamela Knapp. In their video message, they will introduce themselves.

To everyone, it's my pleasure. My name is Frank Lubnau. I'm 50 years old, and live in the South-Western part of Germany. I spent my professional career so far during the last 25 years in various industrial, multinational companies. So I served more than a decade for Siemens being various roles as CEO and President of one of their subsidiaries, dealing with a cloud-based offering and the industry arena, also in corporate strategy and then later as Chief Technology Officer of one of their divisions within the industry sector. After that, I joined Bosch being the first Chief Digital Officer of the Bosch Industry, and now at the way, I'm Managing Director of German's activities of ISS A/S, which is a Danish-based facility management, real estate company, also being responsible for the digital activities. And I'm looking forward to be part of the Supervisory Board, being part of the journey into the new businesses and supporting further way of Signify into the future. Thank you very much.

Good morning. [Foreign Language]. My name is Pamela Knapp. I'm German, 62 years old and I'm living in Austria. During my professional life, I was mostly working in an industrial environment. For almost 20 years at Siemens, there I had a broad range of different functions, reaching from M&A, strategy, human resources to finance and general management. The last 5 years of my operational career, I was the CFO and a member of the management Board of Gfk SE, a German-based market research company. Currently, I'm serving as a Board director for 2 French companies, Peugeot-Citroën and Saint-Gobain, and I am a Supervisory Board member of LANXESS AG, a German-based company in the field of specialty chemicals. Through these functions, I gained valuable insights into different industries and different business environments. It is with privilege and a pleasure to be nominated as a Board Director of Signify, a great company with excellent market positions, high innovation potential and great people. In case of my election, I can assure you that I will put all my skills and experiences at the service of this great company and that I will work with an independent spirit and a real desire to listen to and to serve all stakeholders. Thank you for your attention.

Thank you, Frank and Pamela. [Interpreted] Let's continue with the item 7a, my own reappointment. I'd like to hand over to Gerard Van de Aast.

[Interpreted] Well, thank you, Arthur. As the Deputy Chair of the Supervisory Board, together with my colleagues, I looked into the functioning of Arthur Van der Poel as a Chair of our Supervisory Board and evaluated that. For this evaluation of the Supervisory Board as a whole and for the role of Arthur as Chair, this year, we also drew upon an external party to facilitate the evaluation. You will find more information in the report from the Supervisory Board in the annual report. From our evaluation, amongst others, it became clear that the Supervisory Board unanimously supports the proposal to reappoint Arthur Van der Poel. I would also like to point to the explanations in the agenda for this reappointment and hand back to Arthur now.

[Interpreted] Well, thank you, Gerard. We haven't received any questions with respect to this agenda item, but the VEB made a comment on the suggested -- or proposed appointment of Pamela Knapp and requested sharing that with you. VEB points to the functions that Mrs. Knapp has in other companies. They are listed in the agenda for this meeting. VEB believes that because of the scope and complexity of those companies, it is not desirable to add Mr. Pamela Knapp to the Supervisory Board. VEB believes that she has too many such functions, and therefore, will vote against this proposal. We would like to point out that since the last week, Mrs. Knapp is not member of the Supervisory Board of Bekaert anymore. So that next to the proposed appointment with Signify, she, at this point in time, has only 3 other mandates. As I said earlier on, the VEB submitted other general points of interest with respect to Signify, and one of them, they asked whether the combination of functions by Supervisory Board members is desirable, and this question has our full attention. That is the reason why all members of Supervisory and Management Board have to indicate their intended side functions or mandates. And this is an obligation from the rules of procedure, and this procedure is actually followed up in practice. It is complied with indeed. In the past years, it became quite clear that each and every one of us can combine a number of functions and mandates quite well. We also expect that this will be true for Mrs. Pamela Knapp. In the future, we will keep an eye on whether all members indeed have sufficient time and attention to fulfill their role in the Board they are member of. I would like to now close agent item 7 and now continue with the next one. Agenda item 8, which pertains to the remuneration of the Management Board and the Supervisory Board, the proposal to adopt both to the directive and also to indeed establish the remuneration policy for the Supervisory Board. Let's start with agenda item 8a. This is about the adoption and also the approval of the remuneration policy of the Board of Management, the cash incentive, the long-term incentive plan, those are the relevant changes. An explanation has been included in the explanatory notes to the agenda. And the full policy is part of the documents for this meeting. I would also like to point out that we've had a number of discussions with various shareholders and institutional advisers to receive their feedback support for these proposals. I'd like to hand back to the Chair of the Remuneration Committee, Mr. Gerard Van de Aast.

[Interpreted] Well, thank you, Chair. Now review those policies, and the reason for doing so was the following: First and foremost, this is the first review after the IPO of our company more than 4 years ago. This is, furthermore, an opportunity that we have to introduce a better alignment to our business objectives and remuneration. We have to be compliant with the new shareholder rights directive of the EU, as Arthur already pointed out. And furthermore, it is important to indicate how we did it and that we indeed were supported by a specialized large company, Korn Ferry, in this case, and as I already explained, we talked to shareholders. I talked to shareholders, myself, to hear their insights and to hear what they believed was necessary and what was not. This bring me to the very first change, the so-called labor market peer group. These are the companies that we look at to make a comparison and contrast our old remuneration with the market-conformed remunerations. This peer group is a combination of the Dutch the AEX and AMX funds and companies, furthermore in the sector in which we are active as well. The word sector should be taken quite broadly. We looked into this extensively, and we believe that this peer group is a good representation of how we pay our Board of Management. Looking further to the components. With respect to the annual incentive, I can be quite brief here. We actually haven't changed anything. We've kept the percentages and we've kept the metrics. I'd like to discuss that in detail in further questions. With respect to the metrics, we can choose a number of criteria each and every year, and we choose those that we believe are most relevant in any particular year. And on this slide, you will see the next part of remuneration, the long-term incentive, which enjoyed more changes. We are looking at 2 changes. Instead of 3 criteria, we now introduced 4. The proposed new policy to the right-hand side indicates those 4. We've included return on capital employed. This was on the basis of consultations with relevant shareholders and other parties. Furthermore, we changed the following as a direct consequence of that consultation round. We indeed looked at the performance incentives sold for TSR and adapted that. You can tell from the 2 tables that we have put on the screen next to each other. In the new plan, you will see that the same takes place later -- excuse me, payout takes place later and comparable performance to the peer group has been established. This peer group, though, is different than the one we saw earlier under the labor market peer group. Another point I would like to discuss is that in the old plan, we had a 40%, 40% distribution for relative TSR and free cash flow with 20% for sustainability remaining. In the new plan, we've changed these percentages to 25% for each factor. That, at the end of the day, is a so-called judgment call. We believe that this takes into account all the input we've received and that this is a good balanced distribution. Finally, the next slide, the remuneration policy for the Supervisory Board. In this table, nothing has been changed. And therefore, the unchanged proposal for this -- for the last 4 years and, therefore, will be established for the coming 4 years at this level. That was my explanation to the agenda items with respect to remuneration policy. Arthur, would you like me to continue with questions now?

[Interpreted] Wait a second, please? Let me check? Yes, let's do exactly that.

[Interpreted] Well, ladies and gentlemen, there have been quite a number of questions submitted. I'm now going to do it in English. The first question by the VEB, the board considering using its discretionary power to reduce or slash all variable pay in 2020. Well, the answer is twofold. First, all targets for variable compensation have been set pre the COVID-19 crisis. That also implies that it will be significantly difficult to achieve those targets to begin with. Secondly, we believe that it is, at this moment in time, too early to use our discretionary powers in whatever form or method. And let's finish the year first. Let's see what the outcome is. And then we can consider, as a Supervisory Board, if we should or should not use our discretionary powers. The second question, I believe, is also from the VEB. And basically, it is about the peer group that I shared with you. And the question is around why not more Dutch companies. As I explained, we have done, we have taken a mixture of Dutch-listed companies in the AIX and AMX and also added for 50% sector-specific companies. And we feel also, based on external advice, that this is a fair representation of our peer group. Then the next question is, it is around the added measure in the LTI plan on return on capital. The first question is about, will we publish a detailed calculation of the results on return on capital, and the answer is yes. And next question is, will it be calculated, including or excluding goodwill and other acquired intangibles? The answer is we will include it. And then the C question was, why is it not included in the STI plan as we have included it in the LTI plan? As I explained to you, the Board, the Supervisory Board, every year, analyzes the STI. We can choose from a number of criteria, and we felt that also for 2020, choosing for sales growth, profitability and free cash flow were the right metrics for this year. That might be different next year, but for this year, that's how we decided to do it. Then we move to the next question, how do we take into account several acquisitions? Well, the short answer is that acquisitions, when they become an integral part of the company, and they are as of the date of acquisition, of course, are reflected in all the financial targets that we have. And when it is appropriate, and this year, that's also the case, we will also include in personal targets or in group targets for the Board of Management specific targets around an acquisition such as integration benefits as just 1 example of that. The next question was also from the VEB. And this talks about the debt levels and why have we not chosen to include leverage as a metric. As I have explained earlier, we have the option to look at several metrics, and we have chosen for this year, both in STI and LTI, the ones that I described. It might be different next year, but at this -- when we basically said it some time ago, that was our choice. Then moving on to I think there was a comment from -- made by Triodos Eumedion. They would like to basically see that we increase the rate of sustainability going forward. We have done so by moving it from 20% to 25%. And by adding also return on capital, we feel that, that is now a very well balanced, long-term incentive for management to work with. That brings me to the end of the questions. Thank you, and back to you, Arthur.

[Interpreted] Well, thank you, Gerard. Those were the questions on agenda item 8a. We would like to move forward to agenda item 8b. The proposal to adopt the remuneration policy of the Supervisory Board, and as just explained by Head of the remuneration policy and the level of the remuneration, the Supervisory Board will remain as it has been since the IPO of Signify, it will remain unaltered. So we haven't received any other questions with respect to this point. So we can proceed to the next point, which is agenda item 9, reappointment of the external auditor of the company as stated in the explanatory note of the agenda. The Supervisory Board proposes to reappoint Ernst & Young Accountants LLP as the auditor of the company for a period of 3 years, starting per the 1st of January 2020. And this proposal follows an extensive evaluation led by the Audit Committee, the Supervisory Board, Gerard Van de Aast, has already answered the question about this earlier on today. And we didn't receive any further questions with respect to this item of the agenda. Now I'd like to address agenda item 10, which is the authorization of the Board of Management to: a, issue shares or grant rights to acquire shares; b, to restrict or exclude preemption rights. And all in accordance with the conditions as stipulated in the explanatory note in the agenda. These are 2 voting items, and they will be voted on separately. The authorization is requested for a period of 18 months, calculated as per today. The requested authorizations are quite common in listed companies and in line with the trend of the market and the voting behavior of institutional investors with respect to this point. The requested authorization is for a simple 10% of the issued share capital. And the Board feels that it will have enough flexibility to fund the company efficiently. Both items require the approval of the Supervisory Board. We haven't received any questions on those items, so I'd like to proceed with agenda item 11, which concerns the authorization at the Board of Management to acquire shares in the company within the conditions or in compliance with the conditions as stipulated in the explanatory notes. The authorization is requested for a period of 18 months and is limited to 10% of the share capital issued today and another additional 10% in connection with share repurchase programs and capital reduction purposes and the Board decision with respect to purchase of companies own shares requires the approval of the Supervisory Board, and this is also a common authorization for listed companies. We didn't receive any questions, so we can proceed to item 12. This agenda item concerns the cancellation of shares in accordance with the conditions as stipulated in the explanatory notes. It concerns cancellation of shares that the company has or has purchased in accordance with item 11 of the agenda. Insofar, these shares are not used to comply with obligations and commitments concerning remuneration or other commitments. The number of shares to be canceled will be determined by the Board of Management within the bandwidth of the proposed decision. And once again, this is a common authorization for listed companies. And also for this agenda item, we don't have any further questions. Now this brings us to any other business. And there's no other business because of the structure of today's meeting. And I see that a couple of follow-up questions have been received and -- or was it one? And I see that it's a question for Eric, and he's going to answer that question.

Yes. Thank you, Arthur. So we received a follow-up question from Triodos Eumedion. The question is, we understand that Signify will not disrupt the agent networks of itself and Cooper. We do wonder if the suggestion of the competitor is true that employees from Cooper and Signify agents are joining agents with stronger positions at competitors. So while we are not going to respond to unsubstantiated claims for our competitors, let me tell you the following. Our agent networks, the original agent networks of Signify, has been extremely stable, meaning that all agents are still there and they keep working in close contact with the Signify teams. On the other hand, I have no information of Cooper employees that would have left Cooper to go and work for other companies on the Northern American market. On the contrary, I think the employees of Cooper have demonstrated a very high level of engagement and a very high level of motivation to come and be part of Signify after the acquisition. Arthur, maybe on top of that question, I can come back to some of the general points that were given by VEB and Triodos and comment briefly.

Okay, very good.

So the first general comment is from VEB. And VEB asks us to explain the impact of the current crisis on the commitment for climate actions and the company-related climate targets. So we're facing the corona crisis at this point in time. And it's true that the health of our employees has been the priority #1. Nevertheless, we are not decommitting in any way to our climate-based target. On the contrary, we're continuing to push them through. And we confirm that we are still aiming at being carbon-neutral at the end of 2020. The second general comment that we have is from Triodos and Eumedion. So as part of the question shared prior to the meeting, Triodos and Eumedion indicated that they are pleased with the extensiveness of our reporting, both from a financial and sustainability perspective. Triodos and Eumedion also noted that they are happy to read that our carbon footprint continues to decline and that we have taken an active role in limiting the carbon footprint of our suppliers. So first, we would like to thank Triodos and Eumedion for their recognition. And I will once again confirm that Signify is well on track for carbon neutrality in 2020.

Thank you, Eric. And just looking to the back of the room, no further additional questions. Okay. Thank you very much.

[Interpreted] So this brings us to the results for the different voting points. But before I show you the results of the voting, I'd like to ask civil law notary to inform us of some formal points.

[Interpreted] Thank you, Chairman. Ladies and gentlemen, I have some communications for you. Present or represented at the meeting was 18,576,341 shares, entitling to the same number of votes, 18,576,341 votes. In view of the number of shares issued by the company at the record date, the date at which the vote can be cast, 63.59% of the issued capital entitled to vote is present or represented at the meeting. Prior to the meeting, shareholders have had the opportunity to exercise their right to vote by means of e-voting or another power of attorney, and they can pass on their votes to the independent civil law notary. These votes were received by notary Cindy Smid of Zuidbroek Notarissen. And these votes obviously are reflected in the results of the vote. And finally, I can inform you that the Board of Management and the Supervisory Board have not received any proposals for items on the agenda from shareholders. I'd like to give you back the floor, Chairman.

[Interpreted] Thank you, Martin. Now I'd like to proceed to disclose the results of the votes cast during this meeting. On behalf of the shareholders that had given their voting instructions prior to the meeting. For practical reasons, I'm just going to mention the rounded up percentages of the votes cast. A more detailed voting results will be published on our corporate website shortly after this meeting and will be incorporated in the minutes. The voting results. Agenda item 2, which is the approval of the remuneration report 2019. This was an advisory vote. You can see that 84% has voted in favor of the proposal. So I confirm that the remuneration report has been approved and adopted. Agenda item 4, which is the proposal to adopt the financial statements 2019. You see that 100% has voted in favor. And hence, I confirm that the proposal has been carried and that the financial statements 2019 have been adopted. Then next voting item was 5a, the proposal to release members of the Board of Management of their liability. I see that 99.4% has voted in favor, and the proposal, therefore, has been carried. And the members of the Board of Management have been released of their liabilities. 5b, this is the proposal to release the members of the Supervisory Board of their liability. You see that 99% has voted in favor of the proposal, and I confirm that the proposal has been adopted, and that members of the Supervisory Board have been released of their liability in this respect. 6a, which is the proposal to reappoint Eric Rondolat as member of the Board of Management. You see that 100% has voted in favor of this proposal. The proposal has been adopted and Eric Rondolat has been reappointed. Eric, congratulations. Agenda item 6b, the proposal to be appointed René Van Schooten as a member of the Board of Management. And you see that 100% has voted in favor. And I confirm that the proposal has been adopted. And Mr. Van Schooten has been reappointed. René, congratulations as well. Agenda item 6c, proposal to appoint Maria Letizia Mariani, as member of the Board of Management, and you see that 100% of the shareholders have voted in favor. And the proposal has been carried. And Maria Letizia Mariani has, therefore, been appointed. Congratulations. Agenda item 7a. Proposal to reappoint at Arthur Van der Poel as member of Supervisory Board. And you see that 99.99% has voted in favor, and I confirm that the proposal has been adopted. Agenda item 7b, proposal to reappoint Rita Lane as a member of Supervisory Board. Here, you see that 99% has voted in favor of the proposal, and therefore, the proposal has been adopted, and Rita Lane has, hereby, been reappointed. Agenda item 7c, proposal to appoint Frank Lubnau as member of Supervisory Board. Here, you see that 99% has voted in favor of the proposal. I confirm that the proposal has been adopted, and that Frank Lubnau has, hereby, been appointed. 7d, proposal to appoint Pamela Knapp as member of the Supervisory Board, and you see that 85% has voted in favor of the proposal. And I see that the proposal has been adopted, and that Pamela Knapp, hereby, has been appointed. Agenda item 8a, proposal to adopt the remuneration policy of Board of management, including the proposal to approve the long-term incentive plan of the Board of Management. You see that 94% has voted in favor of the proposal. The proposal has, therefore, been carried, and the proposed remuneration policy, including the long-term incentive plan for the Board of management has, therefore, been adopted. Agenda item 8b, proposal to adopt the remuneration policy to the Supervisory Board. You see that 99% has voted in favor of the proposal. I confirm that the proposal has been adopted, and that the proposed remuneration policy for the Supervisory Board has been adopted. Agenda item 9, proposal to reappoint the external auditor for the company, Ernst & Young Accountants. You see that 99% has voted in favor of the proposal, and I confirm that the proposal has been adopted. Agenda item 10a, authorization of the Board of Management to issue shares. 100% has voted in favor. So I see that the proposal has been adopted. Agenda item 11, authorization of the Board of Management to exclude or preempt preemptive rights. You see that 99% has voted in favor. And the proposal to authorize Board of Management to restrict or exclude preemptive rights has been carried. And now agenda item 12. You see that -- agenda item 11, 94% has voted in favor of the proposal to authorize the Board of Management to acquire shares. And 12 now, proposal to cancel shares in one or more tranches is to be determined by the Board of Management 99% has voted in favor, and so the proposal has been adopted. Ladies and gentlemen, with that, we've dealt with all the items on the agenda, and I, hereby, close the General Meeting of Shareholders. Thank you for your attention. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]