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Signify sees dimmer profit margins as inflation and supply chains weig
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(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.
(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)
Profit margin is a financial metric that shows the percentage of revenue that exceeds the costs of goods sold. It indicates how efficiently a company is managing its expenses relative to its total revenue.
Free cash flow is the cash generated by a company after accounting for capital expenditures. It represents the cash available for distribution among all securities holders of a corporate entity.
EBITA stands for Earnings Before Interest, Taxes, and Amortization. It is a measure of a company's profitability that focuses on its core operations, excluding the effects of capital structure and tax rates.
Supply chain disruption refers to any event that interrupts the normal flow of goods and services in a supply chain. This can be caused by various factors such as natural disasters, economic shifts, or logistical issues.
Currency effect refers to the impact that changes in exchange rates have on the value of a company's revenues, costs, and profits when expressed in its home currency.
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