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Philips sees first quarter net profit slide

Philips sees first-quarter net profit slide

By Agence France-Presse | Updated: 29 April 2015 12:38 IST

Dutch electronics giant Philips revealed Tuesday a 27 percent overall first quarter plunge in net profits, including a drop in its key future focus area of healthcare technology.

Philips said net profit slackened to 100 million euros ($105 million) on increased sales of 5.3 billion euros during the first three months of the year compared with the first quarter of 2014.

That 14 percent jump in turnover was fuelled by a 10 percent surge in sales by its consumer goods and lifestyle unit.

But that advance slimmed to only two percent in comparable terms, once changes in business environment were factored in.

Profitability in healthcare technology which includes high-end equipment such as magnetic resonance scanners declined by 84 percent, while representing 42 percent of overall sales.

"Our investments, coupled with negative currency effects, are the main reasons for the low profitability in healthcare in the first quarter," said Philips chairman Frans van Houten, who added he was "surprised" by market reaction.

Philips' share price was down by more than 5 percent in afternoon trade on the Amsterdam stock exchange.

Healthcare recorded an overall sales increase of 1.0 percent year-on-year, but suffered in a "difficult economic environment and a weak US market" where hospitals are being merged to save costs.

Van Houten told AFP: "We must think long-term. Hospitals are in the process of digitising" and will have to buy new equipment.

"This is a painful but necessary process," added Van Houten, who has championed the move to healthcare, away from Philips' traditional and long-time lighting business.

The quarterly results surpassed the expectations of analysts polled by Bloomberg, who had anticipated total sales of just over five billion euros.

Costs tied to restructuring in particular a splitting of Philips' lighting unit founded in 1891 also ate into profits, but Van Houten described overall activity and outlook as positive.

"We are encouraged by the resumption of sales growth in the first quarter of 2015, which was driven by continued strong performance in Consumer Lifestyle and positive comparable sales growth in Healthcare. We saw positive order-intake growth, despite the continued challenging Healthcare market environment," he said.

Van Houten said Philips expects "modest comparable sales growth" for the entire year, targets pegged at between four and six percent through 2016.

The company, which employes 107,000 people worldwide, has also set targets of 11-12 percent growth in adjusted earnings before interest, taxes and amortisation by 2016.

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