Signify sees dimmer profit margins as inflation and supply chains weig

(Reuters) -Signify’s shares fell around 8% on Friday after the world’s biggest maker of lights said its profit margins would decline this year as supply chain disruption and currency effects weighed on its earnings.

The group now targets a margin on adjusted earnings before interest, taxes and amortisation (EBITA) 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 last year’s 11.6%, with free cash flow of more than 8% of sales.

Signify expects to return to its previous cash flow target as soon as supplier lead times ease and no longer require it to carry higher inventory.

“When you look at supply chain in general and logistics, we think that we have reached the bottom and now things are gradually improving,” CEO Eric Rondolat told reporters in a call.

He said the company had dealt with sourcing issues with redesigns and new suppliers, but that on the logistics side it was “not out of the woods” and would need several quarters to return to normal.

Signify’s adjusted EBITA was 174 million euros ($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 firm said it had offset input cost increases by raising prices but that it was not able to make up for surging energy costs or currency movements.

“We enter now in another phase of the economy, which is going to be slower and should help us to gain back some of the cost increases,” Rondolat said.

“So less price increases and more cost gains in the future.”

Signify, the former lighting arm of Philips, sells mostly LED lights and lighting systems to consumers and businesses.

($1 = 0.9791 euros)

(Reporting by Valentine Baldassari and Elitsa Gadeva in Gdansk; editing by Milla Nissi and David Evans)