Signify sees profit margins shrink as inflation and supply chains weigh

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Signify flags fly at the head office in Eindhoven, the Netherlands, August 30, 2018. REUTERS/Piroschka van de Wouw/File Photo

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July 29 (Reuters) – Shares of Signify (LIGHT.AS) fell around 8% on Friday after the world’s biggest lighting maker said its profit margins would shrink this year, supply chain disruptions and currency effects weighing on its profits.

The group is now targeting an adjusted profit before interest, tax and amortization (EBITA) margin of 11.0-11.4% for 2022, and free cash flow equal to 5-7% of sales.

It had previously forecast a margin increase of up to 50 basis points from 11.6% last year, with free cash flow over 8% of sales.

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Signify expects to return to its previous cash target as soon as supplier delivery times ease and no longer require it to maintain higher inventories.

“When you look at the supply chain in general and logistics, we think we’ve hit rock bottom and now things are gradually improving,” CEO Eric Rondolat told reporters on a call.

He said the company had resolved supply issues with redesigns and new suppliers, but on the logistics side it was “not out of the woods” and would need several quarters to get back to business. the normal.

Signify’s adjusted EBITA was €174 million ($177.7 million) in the second quarter, in line with last year but below analysts’ estimate.

The EBITA margin fell from 10.9% to 9.5%.

The Eindhoven-based company said it had offset increases in input costs by raising prices, but was unable to offset soaring energy costs or currency movements.

“We are now entering another phase of the economy, which is going to be slower and should help us recover some of the cost increases,” Rondolat said.

“So less price increases and more cost savings going forward.”

Signify, the former lighting arm of Philips (PHG.AS), primarily sells LED lamps and lighting systems to consumers and businesses.

($1 = 0.9791 euros)

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Reporting by Valentine Baldassari and Elitsa Gadeva in Gdansk; edited by Milla Nissi and David Evans

Our standards: The Thomson Reuters Trust Principles.

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