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

Ladies and gentlemen, welcome. It is a pleasure that today we can welcome you here again at the High Tech Campus in Eindhoven. 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. We will use the recording to prepare minutes of the meeting. The meeting will be held in English. We have translation services available. 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 invited shareholders to ask questions prior to the meeting. We have received questions from the [Foreign Language], VBDO. We have not received other questions for this meeting. As this is an in-person meeting, again, questions can be asked here in the room and no longer remotely. [Operator Instructions] 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 will explain the voting procedure when we reach the first voting item. I'd ask you, please, to put your phone on a silent mode and not to make any pictures or recordings. Thank you. I now open the Annual General Meeting of Shareholders 2022 of Signify N.V. I'm pleased to present to you behind the table, the Board of Management; our CEO, Eric Rondolat; our CFO; Javier Van Engelen; and our CCO, Maria Letizia Mariani. And on this side is our Chair of the Remuneration Committee, Gerard van de Aast. Unfortunately, Eelco Blok, who steps down from our Board today was not able to attend the meeting today. The other members of the Supervisory Board are present; Pamela Knapp, Rita Lane and Frank Lubnau. Our Supervisory Board nominee, Bram Schot, is in the room and will present himself to you during this meeting. Behind the table at the side, you'll see the Secretary of this meeting, [indiscernible], and the notary, Martin van Olffen, from De Brauw; and André Wijnsma, at that side is present on behalf of the external auditor, Ernst & Young. All right. May I then give the floor to our CEO, Eric Rondolat.

Good afternoon, ladies and gentlemen. It's a pleasure to speak directly to you today. So let me start by looking back at 2021. So the relentless focus on executing our strategy enabled us to deliver on all our objective for 2021 in an external environment that was even more challenging than in 2020. The fundamentals of our business are stronger than ever, driven by a growing need in energy efficiency and digital lighting technologies. We grew our LED-based businesses to 83% and increased our installed base of connected light points to 96 million globally. Comparable sales growth was 3.8%, driven by our Digital divisions despite global component shortages and logistic challenges that made it harder to meet high demand. Further cost optimizations reduced our adjusted indirect cost to 29.6% of sales. This was a decline of 90 basis points year-on-year. Our adjusted EBITA margin increased by 90 basis points to 11.6%, driven by the strong performance of our 2 Digital divisions. This was achieved despite significant cost increases in raw materials, components and logistics. Once again, we had a solid free cash flow performance of EUR 614 million, representing roughly 8.9% of sales. We completed the first year of our Brighter Lives, Better World 2025 sustainability program. And we enhanced our growth profile with the acquisitions of Telansa and Fluence. Let's now focus on our commitment to sustainability. So in 2021, we further built on previous achievements. Our operations worldwide were carbon-neutral and used 100% renewable electricity. More than 60% of our revenues were climate action revenues. We sent 0 waste to landfill. 7.2 million lives were lit through the Signify Foundation. We had an even more safe and healthy workplace with a total recordable cases rate of 0.17 in 2021. Our supplier sustainability performance rate was 98%. In 2020, we also launched our Brighter Lives, Better World 2025 sustainability program with the objective to double our positive impact on the environment and on society. By the end of 2021, we had already made substantial progress. We expanded our commitment to carbon neutrality and are on track to deliver against our ambitious goal of doubling the pace to the Paris Agreement, 1.5-degree scenario, and this by the end of 2025. Last year, more than 20% of our revenues came from circular products, systems or services. More than 1/4 of our revenues were Brighter Lives revenues, that means revenues from lighting innovation that increase food availability, safety and security and also wealth -- health and well-being. At the same time, we increased the percentage of women in leadership to 25%, bringing us closer to our target of 34% by 2025. Our sustainability commitment and performance were also recognized externally. We came top of the Dow Jones Sustainability World Index and were ranked in the top 1% of our industry by Sustainalytics, and we remained on the CDP A List where we have been since 2017. Now let's take a deeper look at how we continued to execute on our 5 Frontiers Strategy. Although the external environment was severely disrupted by the pandemic and global supply chain challenges, we made significant achievements on all our 5 strategic frontiers in 2021. We made further progress in building a truly customer-centric organization. Our customer Net Promoter Score improved by 3 points to 44 globally. This was largely driven by significant growth in the Americas where the Net Promoter Score increased by 10 points. We are delivering on differentiated offerings. We invested 4.1% of our sales in R&D last year. We launched additional brands to cover the various segments of the market. We launched our unique ultra-efficient LED lamp, which consumes 60% less than a standard Philips LED lamp and has a lifespan of 50,000 hours. We are driving 5 growth areas to help address the world's greatest sustainability challenges: climate action, circular economy, food availability, safety and security, and health and well-being. As we drive growth for sustainability, our connected lighting sales grew by 21% to EUR 1.4 billion. Revenues from our growth platform, that is agriculture, solar, UV-C and 3D printing, grew by 19% to EUR 326 million in 2021. We continue to digitalize and transform for the future. So we are improving our digital front end and back end and increasing our data analytics capabilities so we can better serve our customers. In 2021, digital sales via our B2C channels increased by 53.6%. And we launched our Digital Academy for employees to elevate our existing talent pool with the skills needed to drive further growth. Last year, we invested further in our people to create a diverse and inclusive workplace and to deepen our digital and commercial competencies. Our employee Net Promoter Score was 32 in 2021 with more than 80% of staff participating in our survey. More than 80% of our leadership position was staffed internally, which confirms our strong internal succession pipeline. And through the continued COVID-19 pandemic, we kept employees safe with strong safety protocols. These include installing our own UV-C disinfection lighting in 138 Signify locations. Let's look briefly now 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 6.9 billion in 2021. We employ 37,000 people in 74 countries. And we are, as already said, 100% carbon neutral in our operations worldwide. Our company has achieved a major transition in the past decade as you see here on the slide. In 2012, we generated just 22% of our sales from LED-based activities. By the end of 2021, this had increased to 83%. And a growing number of those were connected. Connected-based sales represented 20% of total Signify sales, including Cooper Lighting. At the same time, we managed to increase our adjusted EBITA margin to 11.6% by 2021. Our margin has steadily improved year-on-year for 9 consecutive years while we were transforming Signify. Let me now talk you through our performance in the first 3 months of this year. So we reported a first quarter sales of EUR 1.8 billion, comparable sales growth of 6.4% and an operational profitability of 10.5%. We increased the installed base of connected light points from 96 million in the fourth quarter 2021 to reach 100 million in the first quarter of 2022. LED-based sales represented 84% of our total sales in Q1. Our main priority in the first quarter was to safeguard and support our Ukrainian employees and their families to the best possible extent. Investments in Russia were stopped and all new business was paused since February 25. We were also, during Q1, impacted by the return of the lockdowns in China, especially towards the end of the quarter. And throughout these challenging conditions, Signify continued to see strong momentum in the Professional channel in the U.S. and in most of the other geographies. But the global supply chain disruption, which brought longer supplier lead times and a higher level of inventory, have negatively affected our cash flow. We expect this to positively readjust as the year progresses. A few more words now on the outlook for full year 2022. So following the solid performance in the first quarter, the strong order intake and the continued momentum in the Professional segment, we maintain our guidance for 2022. This assumes that the Chinese market and the global supply chain dynamics do not deteriorate further. Our guidance is a comparable sales growth in the range of 3% to 6%, a continued adjusted EBITA margin improvement of up to 50 basis points and a free cash flow to exceed 8% of sales. Now I would like to talk a little bit about our connected lighting systems and growth platforms. Last year, our connected lighting sales grew by 21% on a nominal basis. Our growth platforms, nominal sales grew by 19%. And they both accounted for 25% of our global sales. Our Professional connected lighting systems support both climate action and safety and security. So for example, we worked with a German city of Herzogenaurach to connect its 3,200 light points and creating optimal safety conditions and generating energy savings. Our solar-powered solutions also address climate action and safety and security, so we brought solar-powered and hybrid street lighting to 10 municipalities in Veneto, Italy, enhancing the safety of citizens while also supporting Italy's transition to renewable energy. Our 3D printing proposition tackles resource scarcity to make the economy more circular. We have now sold 0.75 million 3D printed luminaires made from 100% recyclable polycarbonate. Last year, we installed almost 9,000 3D printed downlights and retrofitted over 14,000 luminaires to LEDs at El Dorado International Airport in Colombia. That's the airport you see here on the screen. Our horticulture lighting solutions help address food availability and are used by growers around the world. For example, Ljusgårda, Swedish vertical farm, has expanded its cultivation area and improved quality and yields using our Philips GreenPower LED production modules and Philips GrowWise control system. Health and well-being is at the forefront of many people's minds. Last year, we introduced 17 new Hue products and 20 new WiZ products, which allow consumers to create lighting environments that support their day-to-day rhythms. Our UV-C solutions also supports health and well-being. With the recognition that COVID-19 is transferred mostly through air, we added several air disinfection products to our UV-C portfolio, contributing to the fight against the pandemic. Our air disinfection products were used, for example, in schools in Germany, restaurants in Taiwan, theaters in the Netherlands. Before I close, I'd like to draw your attention to the great work done by the Signify Foundation. The foundation is an independent NGO funded by Signify. It exists to enable underserved communities to access the benefits of sustainable lighting solutions. The foundation focuses on 3 key areas. First, lighting lives by supporting a range of sustainable projects. The foundation has enabled access to sustainable lighting technology for 7.2 million people globally since it began operating in 2017. And we are on track towards our target of lighting 10 million lives by the end of 2025. Second, supporting entrepreneurs with training and knowledge programs. Since its inception, the foundation has supported more than 11,000 local lighting entrepreneurs, building their competencies to enable community development. And third, lighting to help relieve humanitarian crisis. So the foundation donated 11,000 portable solar lamps for vulnerable groups in locations throughout Syria during 2020 and 2021 and is currently working on a follow-up donation to meet the growing needs there. Signify has committed more than EUR 1 million in cash and in goods for the Signify Foundation to provide immediate relief and medium-term developmental support for Ukraine. So far, this work includes donating almost 30,000 solar lights to the UNHCR and GlobalMedic. We are also in the process of delivering UV-C disinfection solutions to hospitals in Ukraine. All this, again, shows our commitment to unlocking the extraordinary potential of light for brighter lives and a better world. In closing, on behalf of the Board of Management and the leadership team, I'd like to extend my thanks to all our employees for their commitment and dedication over the past year. We are very grateful to our customers for their continued trust and to our shareholders for their confidence and support, especially as we navigate these very challenging circumstances. Everything we achieved last year came amid the continuing pandemic and in spite of severe supply chain challenges. That is a tribute to our people and to our unity as a company. Thank you.

Thank you, Eric. Eric's presentation is closely connected to the agenda items on the remuneration report 2021, 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 6. In agenda item 4, after the explanations from the external auditor, Ernst and Young, we will address questions on agenda items 1 through 6. And after that, shareholders can vote on the proposals of these agenda items. We will now move to agenda item 2, the remuneration report 2021. And 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 2021. I will now hand over to the Chair of the Remuneration Committee, Gerard van de Aast. He will discuss some key elements of the remuneration report 2021. Gerard?

Thank you, Arthur. Ladies and gentlemen, our current remuneration policy for the Board of Management was introduced in 2020. For the year 2022, we are not proposing any changes to our remuneration policy, nor are there any new additions proposed. Before we speak more in detail of the remuneration of the current Board of Management, I wish to take a moment to address some questions that we understand may exist with certain proxy advisors and/or investors regarding our former Board member and Interim CFO, Mr. Van Schooten. In early 2020, Stéphane Rougeot resigned his post as CFO effective March 1, 2020, due to personal reasons. When he announced his departure, Signify was in the midst of the acquisition of Cooper in the U.S. It was not a good time to be without a CFO. Mr. Van Schooten, already a Board member, was asked to take on the role of CFO at interim until such time as a suitable replacement could be found and the role transitioned to the new individual. To facilitate this, Mr. Van Schooten's contract was renewed by 1 year. As such, Signify remained with strong stewardship of the finance function during the completion of the acquisition and, ultimately, a very volatile and challenging COVID period. We were fortunate that Mr. Van Engelen, today present, joined the company and was formally appointed to the role of CFO and Board of Management member by the extraordinary meeting of shareholders in October 2020. Mr. Van Schooten was then informed that his services contract of 1 year to cover the -- at interim period would not be renewed at the end of the contract. Ultimately, Mr. Van Schooten took early retirement. In accordance with the Signify long-term incentive plan terms and conditions, upon retirement, a retiree remains entitled to any award granted prior to their retirement date, which means they vest in full. This is also how we normally operate this for all employees in the case of retirement, and we believe this is fair. It appears that we have not made it clear in our report that Mr. Van Schooten ultimately took early retirement and, as such, his LTIs vested in full. Now I would like to focus on our current Board of Management and the remuneration report for 2021 and the execution of our policy during the year. Over the course of the year, we engaged with multiple stakeholders for discussion on remuneration in general as well to solicit feedback on our report for consideration. We had very valuable conversations with key stakeholders as well as with the Dutch Works Council on executive compensation in general and specifically on our remuneration report. We have taken the feedback into consideration for the 2021 report. And we trust that you will experience the enhancements positively and appreciate the spirit of transparency and continuous improvement that drives them. And I would like to personally thank those with whom we met for the overall very constructive discussions. During 2022, we will continue this engagement with stakeholders to solicit feedback on our remuneration policy and our executive remuneration and to hear their perspectives. Then I move on to the next slide, which is the remuneration of the Board of Management. In line with our remuneration policy, this table illustrates the remuneration of the Board of Management in 2021, salaries as well as targets for annual and long-term incentives. For 2021, base salaries were increased with 2%, which is in line with the collective and merit increase budgets allocated for employees under the collective labor agreements in The Netherlands or better called CAO. In addition, Maria Letizia Mariani's salary was increased to ensure alignment with the salary of the CFO and to reflect the additional scope of her responsibilities. I would like to take a moment and point out that the salaries of all 3 board members were increased by 2%. In 2020, our Board of Management took a voluntary 20% pay reduction in Q2 in response to the unfolding COVID pandemic. It seems that some proxy advisors and/or investors were using that reduced salary as the starting salary for any increase applied in 2021, which is, of course, inaccurate. Then moving on to the next slide, and let me talk to you about the incentive structures and the annual incentive. To refresh our understanding, this slide details the structure of the annual incentive according to our policy. For the 2021 annual incentive plan, we selected as financial performance measures, comparable sales growth, adjusted EBITA and free cash flow in line with prior years. In addition, 20% of the annual incentive for the Board of Management reflects individual and team measures. For 2021, these measures included Brighter Lives, Better World 2021 targets, employee and customer Net Promoter Scores, operational efficiency, sales growth for the new growth engines, digital road map impact and implementation of the reorganization of the central functions you have heard in the presentation of Mr. Rondolat, what has been achieved there already. Then moving on to the long-term incentive. This slide details the structure of the long-term incentive according -- in line with our policy. For the long-term incentive plan, 4 metrics are applicable: relative TSR, free cash flow, sustainability and return on capital employed. Then moving on to the realization of the annual incentive bonus for 2021. With respect to the actual realization of the annual incentive plan, you can now see the details. Targets for the annual incentive plan were set at the beginning of 2021, were not adjusted during the year and where applicable -- and also not for the full year. The company performed well given the considerable external challenges during the year. These included the continued challenges in supply chain as well as the uncertain and inconsistent recovery in many markets and the COVID pandemic. The Board of Management performed very well overall. They were able to capitalize well on demand, improve profitability as a percentage of sales and deliver very solid free cash flow performance. As a result, the outcome for the year was above target performance overall on the financial metrics for the annual incentive plan versus targets set at the beginning of 2021 and which remained unchanged during the year. Additionally, it is important to note that the Supervisory Board did not apply any discretion to the achieved outcomes nor to the corresponding pay on these metrics. From an individual and team performance measure perspective, the Supervisory Board conducts an assessment at the end of the year relative to the targets set for the year. It was determined that it was a strong year and strong performance given the challenges that the company was facing. More specifically, on the individual team performance outcomes, the implementation of the reorganization and central functions went well. The Supervisory Board was very pleased with the overall implementation of the program to create a leaner central organization. Cost-saving measures were achieved while increasing focus on innovation and sustainability. On the digital road map impact, very good progress on the delivery of the digital road map and specifically related to customer interfaces and experience as well as process automation. On the progress towards Brighter Lives, Better World program, 3 out of the 4 measures were on track or above trajectory to double Signify's impact by 2025. The carbon footprint reduction, circular revenues and Brighter Lives revenues were on track or above trajectory to achieve the ambitions of the 2025 program. Women in leadership positions was off track relative to the ambition for the year, although continued to improve in 2021, reflecting an 8% increase since 2019. On Net Promoter Scores, customer Net Promoter Scores, customer first program has continued its upward trend, increasing from 41 in 2020 to 44 in 2021. Despite a dip earlier in the year due to the impact of creating a leaner central organization, the employee Net Promoter Score, Great Place to Work recovered very well, reflecting an all-time high of 32 at the end of 2021 and, therefore, above the goal of 30 for 2021. This reflects an increase versus the end of the year 2020 score of 29. Then the sales growth for new growth engines. In 2021, we experienced a high demand for connected lighting and performed solidly in new growth engines. Connected lighting sales grew by 21%, growth in platforms grew by 19%. And despite this positive trajectory, performance across the growth platform was overall still somewhat behind expectations. Then in terms of operational efficiencies, the company was impacted on its ability to meet the high demand due to significant supply chain disruptions in 2021, which included global component shortages and logistic challenges. As a result, operational efficiencies in the forms of savings and service levels were also behind expectation. The Supervisory Board reviews the performance of the Board and management relative to the individual and team target set and I just went through them in quite a bit of detail. Given what I have just outlined, the Supervisory Board was very pleased with the overall performance against those targets. Despite the challenges faced through the year, we think it was a solid performance. Given that assessment, the realized performance on this measure was rewarded of 90, 9-0, percent. The final results across all measures was above target. This is the combination of personal and group targets and financial targets and came in with a final realization of 111.4%. Then moving on to the vesting of the 2019 long-term incentive grant that were awarded back in 2019. The long-term incentive grant was made in 2019 and has a performance period of 3 years that runs from the beginning of 2019 to the end of 2021. The grant vested earlier this month on May 2. As such, at the end of the performance period, an assessment is made relative to the targets set at the beginning of 2019. As with the annual incentive, it is important to note that no changes were made to the targets during the 3-year performance period. These were targets, by the way, set prior to COVID-19 and supply chain global impacts were known. Additionally, the Supervisory Board did not apply any discretion to the achieved outcomes, nor to the corresponding realization on these metrics. This then is the result of the performance over that 3-year period. On relative TSR, TSR achieved by Signify over the period was 116.6%, positioning Signify as #5 out of 15 companies in our peer group. Resulting final achievement on this metric was 160%. On free cash flow, over the 3-year performance period, an amount of EUR 1.754 billion of free cash flow was generated. And this excludes the pension derisking and IFRS 16 changes, both unknown when targets were set. It represents 8.9% of sales versus a target of 7.7%, resulting in a final achievement of 200%. The sustainability objectives for 2021 were based on the intent to double our impact in the areas of climate action, circular economy, vitalize revenue and women in leadership positions. In all areas, significant progress has been made relative to the trajectory to deliver on the ambitions by 2025. Women in leadership position has increased by 8% from 2019, though falls slightly behind the trajectory to double the percentage of women in leadership position by 2025. Circular and Brighter Lives revenue have exceeded the ambitions set for 2021 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 or health and well-being. Over the period of the LTI plan, Signify also became carbon neutral under our Brighter Lives, Better World 2020 targets and remains a leader in sustainability. The resulting final achievement on this metric was 183%. Final total performance is 180.6% for the 2019 long-term incentive grant. And this is without any modifications in targets due to COVID or supply chain shortages, nor did we apply any executive changes or discretionary changes, therefore. In 2019, the LTI grants were awarded at a share price of EUR 22. The share price has increased significantly in the 3-year plan period. In addition, the company has paid dividends to its shareholders of EUR 526 million during this 3-year period, which is more than EUR 4 per share. In line with Dutch best practices of corporate governance, the members of our Board of Management hold all after-tax shares received for at least 5 years from the date of grant and until our internal ownership guidelines are met. That brings me then to the next slide, the Supervisory Board fees for 2021. This slide details the fees paid to our Supervisory Board members. There are no changes to prior years. The next slide, the outlook in terms of total direct compensation to the Board of Management. For 2022, base salaries have been adjusted by 3%, in line with the budgets, both collective and merit budgets, allocated for the collective labor agreement population in the Netherlands, CAO. The incentives illustrated here on the screen relate to target levels and, therefore, what the total direct compensation would be for each Board of member -- management member, if performance will be on target, has -- of course, remains to be seen. That brings me to the end of my presentation. Thank you. Back to you, Arthur.

Thank you, Gerard. As said earlier, we will respond to questions on this subject in agenda item 4. I will now continue with agenda item 3, and I'd like to give the floor to our CFO, Javier Van Engelen, 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. Javier, 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 strict financial discipline in the generation and the use of our 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 the investment-grade credit rating. As part of maintaining a robust capital structure, we intend to progress towards a leverage ratio of reported net debt over EBITA of 1x by the end of 2022. This includes a cash outflow from Fluence and the Pierlite acquisitions, the 2022 operation cash flow generation inflow and proceeds from further rationalization of company's real estate portfolio. We will also continue to invest in R&D and other organic growth opportunities while pursuing selective M&A 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 2021 dividend of EUR 1.45 per share, totaling EUR 182 million to be paid in cash in 2022. Now let's discuss our net debt development in 2021. Our net debt decreased by EUR 119 million to EUR 1.156 billion at the end of 2021, bringing the net leverage ratio down to 1.4x, in line with our commitment to continue to deleverage the company. The reduction was mainly due to free cash flow generation, partially offset by the payment of both our regular and the extraordinary dividends paid in 2021. In December 2021, we made a further repayment of our term loan debt for EUR 350 million, bringing total gross debt down to a level of EUR 2.007 billion. This includes EUR 1.275 billion of euro bonds due in 2024 and in 2027. And the remaining long-term loans consisting of EUR 280 million and USD 225 million with maturities in 2024 and in 2025. Our cash amounted to EUR 851 million at year-end 2021. We generated EUR 614 million of free cash flow during 2021. On top of our cash available, we also have an unutilized revolving credit facility of EUR 500 million. And with that, I want to thank you for your attention, and back over to Arthur. Thank you.

Thank you, Javier. Questions on the presentation from Javier will be addressed in the next agenda item. And I will now move to agenda item 4, the proposal to adopt the financial statements for 2021. I'd like to kick off with some comments on the annual report 2021. The annual report, including the financial statements, has been available for inspection at Signify's offices and was published at the end of February 2022 on our website. It comprises a report of the state of affairs of the company during last financial year, and the financial statements and sustainability statements are integrated in one single report. The financial statements have been prepared in accordance with IFRS and endorsed by the IASB and 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 is and responsible for the audit. Mr. Wijnsma will give a short explanation of the audit done by Ernst & Young and on the statements from Ernst & Young that are included in the annual report. I'll now give the floor to André Wijnsma.

Thank you, Mr. Chairman, and good afternoon, ladies and gentlemen. It's good to mention that for this AGM, Signify abstained me from confidentiality. And therefore, I am able to provide some insights and disclosures on the audit process that we have done related to the financial statements '21. The scope of the financial statements both relate to company only and consolidated financial statements as well as also the nonfinancial information. Besides, we have reviewed whether the Directors' report, including also the remuneration report complies with Dutch law and is in line with the consolidated financial statements. As external auditor, I am responsible for the audit. And I'm not doing that all by myself, of course. So I have a significant team of auditors in the Netherlands and abroad, all from EY, working together. And for the audit of the nonfinancial information, we use also sustainability experts. Due to COVID, we unfortunately could not perform physical site visits. We've organized virtual file reviews. And myself, I have been involved in detail there as well to make sure that the teams did the work as we requested to do so. The audit of the in-scope locations abroad are carried out all by EY teams as well as also all the statutory audits across the globe. So we do not make use of any non-EY auditors. Related to materiality, I can say that we used EBITA adjusted as the basis for our materiality. And the amount reported also in our auditor's opinion is EUR 32 million materiality. It is our assessment that deviations above this amount could influence also decisions made by shareholders or other stakeholders. And the threshold for reporting of all the differences to the Supervisory Board was EUR 1.5 million. Our audit has been executed also based on this materiality level. And we used data analytics for various accounts, including revenue recognition, receivables and cash. I would like to highlight a few topics, also topics that are very relevant in the discussion with public at large. And one of them is actually fraud and noncompliance. So it's good for you to know that we have carried out a risk assessment on fraud with the start of the audit of '21, working together also with the compliance officer, with internal audit, with the Board of Management as well as also the Supervisory Board. We also made use of forensic expertise in the audit. Based on this, we have identified a fraud risk with respect to management override and in relation to revenue recognition, what might lead to incomplete or incorrect recognition of revenues. This is also a key audit matter for us. It's also good to inform you about the fact that we have provided -- or performed [indiscernible] procedures in 11 countries, risk-based. Countries like China, Malaysia, Indonesia, Poland, Thailand and Saudi Arabia. We have performed additional procedures related to noncompliance with laws and regulations, especially related to relationships with governments, related to new contracts, related to working with distributors as well as also expenses related to gift and hospitality. It's also here good to conclude and it's also written down in our auditor's opinion, that in the execution of the audit, we did not establish increased indications of material fraud or noncompliance that could have material impact also on the financial statements. With respect to going concern, I can confirm that we concur with the fact that the financial statements have been based also on the going concern principle. Next slide, maybe. Then the summary of the audit results. After concluding our audit, we have provided a combined auditor report on February 22, 22, which is also, by the way, included in Chapter 17 of the financial statements. And we have provided an unqualified auditor's opinion related to the financial information, giving a true and fair view, as well as also an unqualified assurance report to the nonfinancial information, which gives a reliable and adequate view. In addition, we have assessed that the full Director's report, including also the remuneration report, is in accordance with Dutch law and also is in line with the financial statements. With respect to the key audit matters, as I just mentioned, revenue recognition has been an important element of the audit. And we have worked also with the Audit Committee during the year on the matter of revenue recognition. The other key audit method that I would like to highlight here, which is included in our auditor's opinion, relates to uncertain tax positions, especially also related to the important estimates that has been prepared there in -- with management. The other procedures we have performed are described quite in detail also in our combined auditor's opinion. Also good for you to know that some changes in the key audit matters appeared also compared to last year. Because in last year, we included also goodwill impairment as a key audit matter. But considering the fact that actually the headroom has increased significantly and especially to Digital Solutions, during the year, we have decided that goodwill impairment is no longer a key audit matter for us. And the same goes actually also for the acquisition of Cooper Lighting, which has been materially completed in 2020. And therefore, yes, no relevance also for us as a key audit matter, especially also because during 2021, no material adjustments were relevant to the accounting of Cooper in 2020. With respect to nonfinancial information, like also mentioned in the report of the Remuneration Committee, yes, we have provided also a reasonable assurance on the elements also related to Brighter Lives, Better World. For the annual report, also the EU taxonomy was relevant, and I think it's also been disclosed quite transparent also in the financial statements. In the future, for sure, with the introduction of [ CRD ], KPIs and principles will also be more clear, but we feel that Signify really is a frontrunner also in the way they present their KPIs. Also here, changes in key audit matters compared to last year. Brighter Lives, Better World has been included now. And actually, as a result, it has replaced 2 key audit matters from prior year related to sustainable revenues as well as also to CO2 reduction. And Cooper Lighting and Klite are now included in the report 2 years after acquisition, which is in line with the company's policy. Then finally, I would like to give you a short reflection on our communication with the company and those charged with governance. Our reporting to Signify relates to the audit plan, the audit results report and our combined auditor's opinion. And during the year, we have had very regular contact with the Board of Management and have had weekly communication with the group finance team members. We have attended all Audit Committee meetings and have had also executive sessions with the Audit Committee. In the Audit Committee of November '21, we have presented the results related to our [indiscernible] procedures, which were based on the September 30 figures. And in the Audit Committee of December '21, we have presented a deep dive more in relation to the data analytics that we use in our audit. In February '22, we have presented our audit results to the full Supervisory Board in the end also resulting in the clean opinions that I just was referring to. In addition, I've had regular contact with the Chair of the Audit Committee also as a preparation of the Audit Committees during the quarter, during the year. With regard to the communication and cooperation with the company, I would like to mention the following. We have a very transparent and open dialogue from both sides. And I feel no limitations in the communication that we have with the company. We have good cooperation and transparent communication, which is constructive but certainly also with professional skepticism. In addition, I would like to notice that we feel that there's a right tone at the top in relation to the way of we work together, the way also of doing business, what we see, as well as also the responses to our audit observations and, finally, also in terms of the estimates made by the company in preparing the financial statements. I hope I have provided you with more information in relation to our audit process as well as also to our combined auditor's opinion. And Mr. Chairman, I would like to hand over to you. Thank you very much for your attention.

Thank you, André. Ladies and gentlemen, we now come to your questions on the topics mentioned under the agenda items 1 through 6. Who may I give the floor?

[Interpreted] Thank you, Chair. [ Arne Jorna ] on behalf of the VEB, the Dutch Stockholders Association. Well, Chair, a question we have is to what extent does Signify have sustainable competitive edge compared to the many namely Chinese large competitors in LED lighting? And how does that competitive sustainability edge show itself -- manifest itself? Second question, there is a new LED lamp, the Philips ultra-efficient lamp. And it uses 60% less energy and is protected with patents. And is the price of this lamp still an obstacle or is it usually bought when one replaces other LED or traditional lamps? Is it used a lot? And is Signify able, in this way, to win a market share with this lamp? The supply chain and the problems that have shown themselves therein. The CEO, Mr. Rondolat, was very positive about this that they are past these problems. And halfway through this year, he says, we should no longer feel the trouble of this. And I think the truth is a little different. I think there's still many problems. But I hope for Signify that, that positive outlook comes true. How does Mr. Rondolat now view the supply chain, the lack of components and everything related there, too? How does he view these things at this moment? Then in regard to those components, he also pointed out, and this triggered me as former inhabitant of Eindhoven and still knowing the culture of Philips, where we indicated that the lack of components was solved by the redesign of products to make new components and as such, really unburden the supply chain somewhat. And this used to be, and I quote "this used to be" not possible or would not have been possible in the past. And what does he mean then not in the Philips culture? Would it have been possible to replace anything because good was good at Philips and never was anything replaced? It is simply a further explanation of that particular statement that I would like, if I can get it. And then to Klite, Chinese factory, problems in the supply chain. Are you thinking of having production from China situated more in Europe from now on? And that concludes my questions in the first round. No, I'm forgetting the most important thing, which is digitization. B2C is rising to sell your products like that, but also digitization in your own processes, leaner and meaner as we say. And the third thing of digitization manifests itself in your products, making digitization applicable to the whole connected light range. So those were my questions about topic 2. Do you wish me to come on or will you answer?

Well, this sounds like a good moment to pause your questions and go to some answers. I think all of them are addressed to you.

Yes. A lot of questions. I will take them one by one. So the first one about the sustainable and competitive edge compared to Chinese companies. Look, I think our strategy has been a strategy of differentiation and a strategy of innovation. To that matter, I believe that we have, still on the market, for LED product, a competitive edge, and we're proving it. We are the leader today in the lighting industry, also on LED. We've made a very important move, if you remember, 2 years ago when we acquired 51% of one of our suppliers to be also less dependent on some suppliers we had in China that became also our competitors. And if you look at it in hindsight, after 2 years, that was also a very important move, giving us a clear competitive edge because we're doing 2 things when we acquired 51% of that company. First, we are bringing the volume we had at other suppliers to our own company, reducing its fee cost with the additional volume, but also getting more margin because we're getting the margin that our suppliers had. That leads me also to the second question. The ultra energy-efficient lamp, effectively, you've listened well. It has 5 patents. It is a bit more expensive, but it lasts also longer. We talk about a retail price that would be today slightly below EUR 10 where probably you would have an equivalent LED lamp today that would be retailing between, depending on where it is, EUR 3.5 to EUR 5. So it's more expensive, but it brings a longer lifetime and additional savings up to 60%. What we also believe is that in the situation in which we are, at this point in time, with an increase of the energy prices, the return on the investment of such a lamp is much faster than it used to be. So we really believe in that offer, which is now being launched in many countries. Supply chain, so maybe I don't know if I was positive. What we said and we stuck to it. We said we see in 2022 an improvement on the component side in the first semester and an improvement in the logistic side of the business in the second semester. If we look at the numbers at the end of Q1, effectively, you remember that for the components, we had given an indication of the number of escalation level 4. In normal times, it's less than 5. In Q2 2021, we went to 232. Then we went down in Q3 to 167. Then we went down in Q4 to 90. Then we went down in Q1 to 40. So at the end of the day, we see an improvement on the component side.

Eric, maybe you should explain what the escalation level means.

Yes. Escalation level 4 is basically when there are big problems of components. There is an escalation mechanism within the company that goes up to level 4, which is the maximum. And at level 4, the COO of the company is involved, I am also involved. I was in contact with many suppliers in 2021 that were manufacturing and selling those components for us. So basically, escalation level 4 is when there is a major issue. So we see an improvement on components. We see also an improvement on logistics, but much slower. It's going to happen later. What we see, we see that our suppliers deliver us a bit faster. We can replenish our logistic centers a bit faster. The vessel -- the capacity of the vessel to reach the harbors on time, it's also improving, but we are at the start. Now there is something that we had not taken into account when we talked about that is the situation of China because the zero-COVID policy is putting an additional strain on the supply chain and also the situation with the war in Russia. So what we have said is that this is still valid, improvement component in H1 and logistics in H2, provided there is no further deterioration in China and given the war in Ukraine on a macro scale. Let's go to component redesign. That has nothing to do with Philips. I think that when you take a bit of distance, it's not only us, it's many companies. If you ask any company, how long does it take to change a micro controlling unit? They would tell you between 10 to 18 months. And this is what we all had in our minds. But when we are in a situation as critical as the one we faced, we had to find ways to go faster. And in some cases, especially for components at a lower level that need less embedded software, we could do it in 3 months. So what we believed was doable, not only us but also others, not before 10 months, we could do it in 3 months. So this was to illustrate probably that when there is a difficult situation, we have to find other ways to do things. We need to reinvent ourselves. And by the way, very important for you to note, I think that we have managed this crisis on components probably better than others because we did a lot of redesign that helped us to put new components in our design, but also new suppliers. Yes, I believe that we need to be -- as the world is less global, we need to be less global from our supply chain. And we have the plans to have a more regional base in terms of production. It doesn't mean that there's not going to be some global manufactured products, but it will be more from China to Europe and from China probably to also Mexico and Central America for the Americas. So if you take a bit of distance, probably more of Mexico and Central America for the Americas, more of Eastern Europe for Europe and China and India for the rest of the world. On the digitization, we're doing 3 things. We are digitalizing our interface with customers. And we have done a lot of actions and we have a lot of projects in doing so, which are running very well. There's one that you can witness. If you want to buy Hue products, you can go online and we have our own portal that helps customers/consumers to see our product, experience them, but also buy them. Now you need to know that the growth of that portal in terms of digitalization has grown even faster than the rest of the connected business. We also are digitalizing our processes. And this is longer -- midterm task, but we are proceeding according to the plan there. And of course, all the connected offers, but you know that, so we're operating on 3 fronts when it comes to digital; interface -- customer interface, processes and offers.

I know you have some other questions, but I'd like to give the floor to other people first. Go ahead.

Peter [indiscernible], I'm representing VBDO. So we are, yes, association for investments in sustainable development. So we take a close look at sustainability. Well, I can first say that we are pleased that sustainability is in the heart of your company. And I can say that we compare these annual reports very closely of the listed companies in the Netherlands. You are, yes, one of the best, so to say. But still, there's room for improvement. I have some questions on that. The first one is about biodiversity. This is a topic that we added to our list of very important sustainability topics. We would like to ask you what is your company's road map to -- yes, to create impact on the entire value chain regarding biodiversity? And also, what are your plans to decrease negative impact? So we've seen in your annual report that you pay attention to light not affecting animals, for example. This was a nice remark you made in your annual report. But how are you organizing that in your value chain? Okay. Then our next -- second question is regarding circularity. You reported on that nicely in your presentation. But your ambition is to double your circular revenues. That is obviously what we support. But how are you? What is your road map there? And the second point is, what steps are you taking to circularity in your supply chain as well, because you have many suppliers, and how are you organizing it there? And then finally, the third question, that is about, yes, gender diversity. So we've seen -- yes, you reported on some improvements there. But also about pay cap which was in the news many times past year. And we would, in fact, expect Signify to report more clearly on that topic. And can you make some promises in that area to us? Okay. That's our questions.

Thank you very much, Mr. [indiscernible], and all the 3 are for you, Eric.

Thanks a lot, and I agree there's always room for improvement. So let me talk to the different subjects. So the first one is about biodiversity. And we are, effectively, at this point in time, defining the different steps that we need to take towards what I would say a better management of the biodiversity impact of what we do. We have defined 5 steps. So the first one is to identify the zones that are at risk, starting with our own footprint, our own site. When we've done that step 1, then we go to step 2, which is to measure and qualify the actual impact in each of these risk area. The third step then would be to define the action plans to prevent, manage and eventually remediate some of these risks. Step 4 in the way we've aligned it in our plan is then to monitor, but also report on the implementation of the action plans. And step 5 would be then to extend that first exercise, which is at the level of Signify, as you have said to the whole ecosystem that we're managing, so our supply chain on one hand, but also our customers in the use phase. So, so far, we have completed step 1. And we can say that none of our sites are in a risk area. But there is 1 site which is in a key biodiversity area. So now we need to conduct the other steps. Step 2 and step 3, we believe that we should be able to do that before the end of 2023. And by the end of 2025, we should be done with the 5 steps, including also the external part, which is the use phase and our supply chain. On the second question, so the second question is about circularity. So basically, we have a big ambition, which is to double our revenues to 32% of what we sell. The base that we have taken is 2019. We are already at 30%. So we're moving in the right direction very quickly on different fronts. So first of all -- let's talk first about the offer, will talk about the supply chain after. So at the level of our offer, we are going on 2 very clear axis. So the first one is to develop more and more modular offers. We call them serviceable luminaires. So a luminaire is a piece of device like you have every time you have light, and what was happening before, if you need to change it, you change everything. So instead of changing everything, we're defining modules. So depending on what you need to change, you would have to change only one part of it. And that is extremely important because we know that some of the parts can stay for much longer and don't need to be serviced, don't need to be replaced. So we've been improving greatly the number of serviceable luminaire that we have in the portfolio. Lately in Q1, we had a great contribution from Cooper Lighting, bringing more modularity, more serviceability in their own luminaires. The second element that we have been driving quite strongly is 3D printing. So 3D printing parts in some luminaires or 3D printed luminaires as a whole, what is the beauty about it is that the raw material, as it is 100% recyclable polycarbonate, can be reused many time, up to 4 to 5x. So if you imagine that the lifetime of a luminaire can be normally between 15 to 20 years before we used to take it and then just take it away or trash it, now we can reuse the raw material up to between 50 to 70 years. And that's very important for us. We have already six 3D printed plants and all over the world doing this. Now when it comes to our value chain, we have done a few things. So the first thing is that we have eliminated plastics in all our consumer packaging. That was not easy at the beginning because the team was telling us, well, it's going to be more expensive. Consumers are not going to like it. But at the end of the day, we've done it to the satisfaction of our consumers, our customers. But also we've been able to do such a packaging so that it had a positive impact also on cost. Something that I'm very proud about is the fact that we have zero waste to landfill. This is a very complicated objective to achieve. So all our sites are zero waste to landfill today, including the new sites that we have welcomed with the recent acquisitions. So we're very happy about that. So that's, in a nutshell, all that we're doing around circularity. Now let me take the last -- okay, diversity. So for me here, I would look at 2 different aspects. One is equal pay and then pay gap. As far as equal pay is concerned, we have put a very comprehensive system in place, which we're very proud of. So every year, we go a bit more granular, defining job groups within the company. So in 2021, we've defined, I think, it's 5,102 job groups. And within these jobs groups, we evaluate whether we are paying equally for similar jobs. The result is that we have only found 6 job groups and 31 persons where there was a gap. And that was corrected in less than 30 days after it was identified. Now if I take 31 persons, it's less than 0.1% of the population, which shows that we've been doing a lot of efforts in the past. And now we can consider that we have an equal pay because with 5,100 jobs, probably we can go more granular but by not more than 10% in order to conclude on that. Now the next point, I'm going to take another commitment and promise. We are going to publish in a few weeks our diversity, equity and inclusion report, the first one. And it will include the pay gap that you will see -- we are calculating on 4 different job groups. So you're going to have the information in the coming weeks.

All right. Thank you, Eric. Who is next to ask one or more questions? All right, Mr. [ Jorna ].

[Interpreted]. Yes. Chair, as a follow-up question to VBDO representative, and you know all things considered, in mass media, we hear that Signify does not support the African countries' initiative in order to phase out in 2025 the mercury lamps and to forbid them, to ban them. And Signify via those different channels is trying to keep that kind of lamps in Africa for a longer time. Is that true? And if it is, why do you choose for this position? Right below and the remuneration policy and looking at the STI, 160% is the score in EBITA. Looking at -- well, side looking back, we see that the target was quite ambitious. It was ambitious enough, 160%, to reach the level of EBITA. It was [indiscernible] so from 10.6% to 11.2% -- yes, to 11.6%. It was quite ambitious, 160%. Looking at the TSR ranking, we know that Cree was phased out because of the new business and they're replaced. And they used to be #1 at TSR. They won -- they are replaced by MLS. And have you had a look if MLS is comparable to Cree in that level? Or is it the level -- the same level play or are they on a different level because this is what is going to be important? And regarding the total picture, we would like really to make a statement next year. And you understand where I'm driving at. Last year, EBITA, we saw a remuneration report. And we saw that the ambition levels were adjusted. And [ FEB ] still believed that the chosen targets were so high that they all came in presented by Signify not to present a number of targets, does not receive our approval. That's why [ FEB ] is against this remuneration report because of the lack of transparency. This is what VEB had to report. So then I have the financial questions as well. This is, in fact, just one question and also have for the audit chair. We're looking at the Q1 of '21 and '22, then the free cash goes down to 198 in the min. And the target is to get the 98% of cash flow. Can you please explain how it is possible to achieve this cash flow level if we know the situation with the stock? This is the financial issue. Regarding the auditor -- the auditor's report and the added value of the fraud paragraphs amount to the specific environment of the company and the fraud clause is actually supported by [ NBA ] and VEB, looking at the results, which we saw in the past much too often. And the accountant's opinion refers to the work done by the company itself and the standard wording. So this is the text which we see in almost every opinion. They're almost identical. The audit identifies the responsibility and identifies the fraud risk and that is the key audit matter. Could you please explain how the intercompany transactions regarding Digital Products were checked? And right, and then corruption checks, how were those covered? And what are the audit results in that matter? Another question to the auditor, when presenting the audit plan, which request did you receive from the Audit Committee in order to mend the audit plan or to clarify or maybe some focal points like cybersecurity and which did you implement in your audit plan? Regarding Better Lives, Better World program, and we saw that it was a key audit matter, showing how important this work is for Signify. So my question to the auditor is, did you establish the presented value if it is going to grow in the future? And if the assumptions have been fixed and clearly presented, unambiguously presented, and if they are going to be controlled by them and if they're easy to control and are you going to present that data?

Different mix of questions. I would say, question 1 and 4 will be for Eric. Question #2 and 3 will be for the Chairman of the Remuneration Committee, Gerard van de Aast. And regarding your point, your voting thing that you disagree on the ex -- not ex -- anti-publishing of the targets, I think we have to conclude that we agree to disagree. We have a clear and strong opinion and so do you. And for that reason, you take the respectable view that you will not vote for. But let's start with question 1 and 5, being the Africa initiative and the cash flow in Q1, for Eric.

I will let the cash flow to Javier. I'm very surprised with your question because I was myself personally discussing with the African countries. So we fully and 100% support the Minamata Convention. The message to them is that the date is their decision. And we're going to be at their disposal when they decide on the date and to support them in doing that transition because when you change a fluorescent, it's not only the light source, it's also the driver and installation needs to be changed slightly. So we're completely in line with the Minamata Convention. We're supporting it. We said to the African countries, you decide on the date and we support you. That's our position.

Yes, let me get back on the -- yes, let me get back cash flow. So you're correct. So the number is minus EUR 189 million in Q1. We have, at the end of Q1, still confirmed our guidance for the year, which is to hit the 8% percent of sales. Now what's the dynamic? To go through dynamic, let's go, why we feel at this point confident and what does it relate to? First of all, if you look at the components of our free cash flow, operating profit, which is sales and operating margin, both of those also we've confirmed our guidance and then it comes down to working capital. In working capital, 3 components; accounts receivable, account payables and then the inventory. If you look at our performance on accounts receivable and account payables, we're in line with target. So the whole question zooms down to inventory levels. What we see on inventory levels, obviously, there's quite some seasonality and also with the supply chain that we've seen now disrupted, we've seen a significant buildup of stock at the end of last year because of longer lead times, goods in transit and also forecasting which becomes more difficult. That buildup of inventory with our payment terms is getting paid in Q1. So in Q1, we are typically paying the inventory that's build up a quarter before that. So we think that in that sense, we have a lot of the pain, let's say, behind us on those payables. Now it still makes us skew for the rest of the year. We have to recover from the minus EUR 189 million and build up again in the second half of the year. That's also then related to the same topic, it's inventory reduction. Now depending what happens with supply chain, we normally also in the second half of the year see a decrease in the inventory. Especially in Q4, we normally see an inventory reduction because it's our highest sales quarter and planning for a low Q1 of 2023. So the seasonality this year is going to be absolutely key. It is something that we're watching very closely, especially with the development of supply chain. But the bridge between where we are today and the full year is that seasonality of inventory and then making sure that we sell out what we have in inventory going back down for the rest of the year. That's how we bridge to the 8%.

All right, then the 2 remuneration questions to Gerard.

Thank you, Chairman. The first question was if the target or the achievement of 11.6% in terms of margin and then the payout of 160% if the target that was associated with that was ambitious enough as I understood it. We think it is. And maybe the best way to illustrate it is, I don't know if we can do that. Can we go back to Slide #12? There we go. It's easy to talk to Slide 12. This is not 12. There we go, right. So let me illustrate this based on also the numbers that you see in front of you. And if you go back to 2016 and you look at the margin development, this picture tells a number of stories. The first one is that, a, Signify has increased steadily year-after-year its margin, which is an achievement in and of itself. And this is despite COVID and all kinds of other excitement that went on in the market. Secondly, if you take the average of starting at 2016 and going up to 2020, the average increase over that 4-year period was 0.45%. Simple math, I mean take the average of these improvements. So if in the 4 years prior the average improvement was 0.45%, then achieving in a year, an increase of -- an improvement of 0.9%, which is doubling it over the 4 years prior, I would think goes along with a reward of 160%. So the best way for me to illustrate and answer your question is based on these numbers. So I hope that does it. Then your second question is on TSR. And we had to change -- we had to take out Cree because they sold the business. So it's not any more a business or a company in our sector. And of course, we looked at it. And if you look at the annual report on Page 46, you can read that we did look at risk, size, value, growth, et cetera, all these elements we're taking into consideration, and territory. And we believe that this is an appropriate replacement then. It is, of course, impossible for us to say if MLS now will be a super-performing company or a low-performing company. I mean if we would know, then maybe we shouldn't be here. But no, we did our homework -- we have done our homework. And this is a suitable replacement as described on Page 46 of the annual report.

All right. Thank you, Gerard. Then the questions to the auditor. André?

Yes. Three questions to us as an auditor. In fact, we thought already that we were quite extensive in our fraud report on what we are doing because especially also related to fraud, but also noncompliance. Yes, we have been quite, let's say, detailed on what we do, but I can give some more insights here. And one of the requests also from the Audit Committee to pay more attention also relates to noncompliance and export controls. So for fraud, we use actually a global sales and revenue receivables program where actually we extracted data centrally and we actually can analyze the sales figures for the whole globe and report based on the outcomes to the local countries for deviations, for explanations from their side. And with that, actually, we can -- yes, we can see the link between the sales, the revenues and the receivables and the cash. So there's a very strong link to it. For intercompany, actually, we are very much focused on transfer pricing, of course, and the eliminations. And also for intercompany sales, we use the same tooling actually for this global revenue program. With respect to corruption, I think I already mentioned that we have quite an extensive program, risk based, also related to noncompliance with laws and regulations. And there also, let's say, the relationships with governments is part of the work program that we perform. In the countries, so we have 11 selected countries where we do that. You have to think about countries like Indonesia, China, Malaysia, Saudi Arabia, Italy, Poland, these type of countries are in scope actually to have more insights in corruption. And we also report to the Audit Committee on the outcome of that. And I think we also concluded in our auditor's opinion that we have not find material observations that could materially impact also the financial statements. So if you have -- if you ask me, the request from the Audit Committee mainly relates to, let's say, the export controls and noncompliance. And also for cyber, we are involved, let's say, in what the company is doing. We include also experts there. And I think also it is a top-of-mind also within Signify how actually the risk of cyber is also being reported to the Audit Committee, but also to the Supervisory Board. Then your last question, indeed, about Better Lives -- Brighter Lives, Better World. Indeed, that is very important. And I think the company made a huge step already in 1 year. So what we have done actually in the audit, we have indeed been able to verify the correctness of the range of percentages that are included in the report and I think there is an ambition, which is also included in the financial statement for Scope 3. And Scope 3 is quite complex. And I think VBDO will confirm because you also depend on information from third parties. But also there, the company has ambitions to include it in the financial statements in the future. So we are able to establish indeed that the percentages of Brighter Lives, Better World are correct indeed. And that's also included in our scope already of the assurance for nonfinancial information. Is that sufficient? Thank you.

Thank you, André. Are there any other questions from the floor? Apparently not. Thank you very much for your questions. Now let's move to the voting and, first of all, explain the voting procedures, after which you can vote on the agenda items just discussed. Martin, can you please guide us through the formal announcements and explain the voting procedure?

Yes. 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 99,564,670 shares entitled to the same number of votes. In view of the number of issued shares that can be voted almost at the record date, this means that 80.24% 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 notary, Cindy Smith, at Zuidbroek Notarissen. She is present at this meeting in the back of the room. And she has confirmed that she had 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. Now let me briefly explain the voting procedure during this meeting. Would you please now take your voting device. You can enter your voting card with the arrows at the bottom facing you. Your name will then appear on the display. When the vote opens, you will see the voting options. If you don't see these, please raise your hand, so we can assist you. You can leave the card in the device during the entire meeting. To cast your vote, please press either 1, 2 or 3. If you want to vote for a proposal, press 1. If you want to vote against a proposal, press 2. And if you want to abstain, press 3. In the display, a confirmation of your choice will appear. If you wish to change your vote, simply enter your new choice and your last choice will be counted. After the vote closes, the voting results will be shown here on the screen. I will then state a 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. Back to you again, Arthur.

Thank you, Martin. We will now start the voting. The first proposal that you can vote on is agenda item 2, advisory vote on the remuneration report 2021. The voting can start. You can now cast your vote on agenda item 2 by selecting the vote of your choice. As said, 1 is for, 2 is against and 3 is abstain. [Voting]

Voting is closed now. We'll wait for the outcome. The screen shows the voting results. As you can see, almost 71% for the for proposal, which means that the required majority is voted in favor.

And I thus conclude that the remuneration report 2021 is approved. We will now go on to the next voting item, and the proposal on which you can vote now is from agenda item 4, proposal to adopt the financial statements for the financial year 2021. And the procedure is the same. On the display of your voting device, you will see 3 choices. [Voting]

In a few seconds, the voting will be closed. Voting is closed now. We'll wait for the outcome. As you can see, more than 99% voted for the proposal, which means that the required majority is in favor of the proposal.

I thus conclude that the proposal is accepted and the financial statements for 2021 are adopted. And I will now move to the next voting item, and the proposal on which you can vote now is from agenda item 5, proposal to adopt a cash dividend of EUR 1.45 per ordinary share from the 2021 net income. Please cast your votes now. [Voting]

We will close the voting and wait for the results. And as you can see, more than 99% voted for the proposal again. The required majority has been voted in favor of the proposal.

I thus conclude that the proposal is accepted and the proposed dividend is adopted. And we will then go on to the voting on agenda item 6 and this regards 2 voting items. The proposal on which you can vote now is from agenda item 6A, proposal to discharge the members of the Board of Management in respect of their duties performed in 2021. Please would you now vote on this proposal. [Voting]

The voting will be closed. We'll wait for the results. And as you can see, more than 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 that the members of the Board of Management were granted discharge. And then we move to the second vote under this agenda item, which is the proposal to discharge the members of the Supervisory Board in respect of their duties performed in 2021. Please cast your votes. [Voting]

The voting is closed now. We wait for the results. As you can see, more than 98% voted for the proposal. Again, the required majority has been cast for this proposal.

As you can see, the proposal was adopted and the members of the Supervisory Board were also granted discharge. And we now go to agenda item 7. On the agenda is the proposal to appoint Bram Schot as member of the Supervisory Board. When proposing someone for appointment, we take account of the Board's profile, including diversity as well as desired expertise and experience. The Supervisory Board recommends the appointment of Bram Schot to our Board in view of his managerial experience, his extensive technology knowledge and a strong understanding of the importance of a customer-centric approach. Moreover, Bram shares our commitment to sustainability and has personal experience with transitioning towards more sustainable customer offerings. The proposed appointment is for a term of 4 years. Bram, could you please briefly introduce yourself?

Good afternoon. My name is Bram Schot, 60 years old, born in the Netherlands. I have an MBA at Bradford University. My experience and background is in automotive, mobility and energy. I had a long stint at Mercedes-Benz, 30 years, and in the VW Group. And lastly, as CEO and Chairman of Audi and Vice Chairman of the Porsche Holding. Currently, I'm in the Board of Directors of Shell, especially there for the energy transition part. I'm a senior advisor at Carlyle, which is a private equity firm, investment firm. And besides that, I'm also a professor at Bocconi University for leadership and transition. I'm actually honored and pleased actually to be on the nomination, and I'm sure that my background actually will benefit Signify. Thank you very much.

Thank you, Bram. Are there questions about the proposed appointment of Bram Schot? Apparently not, then we will move to the voting on this item. Agenda item 7, proposal to appoint Bram Schot as member of the Supervisory Board, and please cast your votes. [Voting]

The voting is closed. Now we wait for the results. And as you can see, more than 96% of the votes has been cast in favor of the proposal, which means that the required majority for this proposal was reached.

I thus conclude that the proposal is adopted and that Bram Schot is appointed as member of the Supervisory Board. Bram, congratulations and welcome to the team. This then concludes agenda item 7, and we will move to agenda item 8. This regards an authorization to the Board of Management, a, to issue shares or grant rights to acquire shares; and, b, to restrict or exclude preemptive rights, both under the conditions stated in the notes to the agenda. The proposal are 2 voting items that will be voted on separately. The authorizations are requested for a period of 18 months as effective as of today. These authorizations are customary with listed companies. The requested authorizations are for a single 10% of the issued share capital. And 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?

[Interpreted] Thank you, Chair. [ Bruning ] is my name. I'm a minor shareholder from Rotterdam. And my question is, are there any specific or concrete plans to actually use this authorization that you are given?

Well, the usual answer is no, because if there would be something very concrete, you would know. And if there would be something cooking, we need to continue cooking until we can say anything. So these are not just with us, but with any company, customary requirements in case of. Well, imagine, 11 months down the road, something pops up. We say, now we urgently need the money and then we would need to convene a shareholders' meeting, et cetera, et cetera. So it is -- that's why the horizon is customary this period. Yes. Okay. Understood. Any further questions? If not, then we move to the voting. Proposal to authorize the Board of Management to issue shares or grant rights to acquire shares. Please cast your votes. [Voting]

The voting is closed. Let's wait for the results. As you can see, more than 98% of the votes is voted for the proposal. And again, required majority is in favor of the proposal.

I thus conclude that the proposal is adopted and the authorization granted. We now proceed to the second voting item of this agenda point, proposal to authorize the Board of Management to restrict or exclude preemptive rights. Please cast your votes. [Voting]

The voting is closed. And as you can see again, more than 98% of the votes is 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, and this brings us to agenda item 9. Agenda item 9 regards the authorization to the Board of Management to acquire shares in the company under the conditions stated in the notes 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, and this requested authorization is also customary with listed companies. Are there any questions on this proposal? Apparently not. We'll then move on to the voting, the proposal to authorize the Board of Management to acquire shares in the company. Please cast your votes. [Voting]

The voting is closed. And as you can see, more than 96% of the votes has been 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, and we'll then move to agenda item 10. This agenda item proposed to cancel shares under the conditions set forth in the notes to the agenda. It concerns the cancelation of shares that the company holds or acquires under the authorization 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. And this too is a customary authorization with listed companies. Are there any questions? Apparently not, then we'll move to the voting on the proposal to cancel shares in one or more tranches as to be determined by the Board of Management. Please cast your votes. [Voting]

The voting is closed. Let's see results. More than 98% of the votes has been cast in favor of the proposal and, again, the required majority is in favor.

I thus conclude that the proposal is adopted. And then we will now move to the final agenda item. And this general item is for any final questions. But before we address these, I would like to say a few words of thanks to Eelco Blok. As mentioned, Eelco Blok today steps down from the Board at his own request. On behalf of the Supervisory Board, I would like to thank him for his valuable contribution to our Board and to Signify over the past 4 years. We have particularly appreciated his insights around IT, cyber and technology and his involvement in the digital committee of our Supervisory Board since this committee was established in January 2021. So also in his absence here [indiscernible], thank you, Eelco. I will now move to any final questions. Is there anybody to whom I may give the floor? If there are no further questions, I hereby close the Annual General Meeting of Shareholders 2022. Thank you for attending this meeting. For the people here in Eindhoven, may I ask you to hand in your voting devices and voting cards at the reception desk. And you are invited for drinks in the welcome area of the lighting application center. And for when you leave us today, I wish you a safe journey home. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]