AMSTERDAM — Philips reported a near-tripling in third-quarter net profit, beating forecasts and pushing its shares to their highest since mid-2010 after two years of cutting costs, selling weak businesses and targeting new products at emerging markets.
Reuters
The Dutch firm, once known for its audio and video products, has shifted its focus towards the fast-growing healthcare equipment and energy-efficient lighting sectors, bowing to competition from a plethora of Asian companies as consumer entertainment evolved to mobile Internet devices.
It has also launched a slew of new and updated products in the profitable consumer appliances market – selling electric toothbrushes and shavers in Japan and China and air purifiers in China and Singapore where air quality is a concern.
In the process, Philips has boosted profits and, via a tight handle on costs, insulated itself from currency volatility and slowing economic growth that have recently rattled other big firms like Unilever, present in India and Indonesia.
Unilever issued a surprise sales warning at the end of September, fuelling worry that a slowdown in emerging markets would affect other consumer companies. Countries like India, Brazil and Indonesia have seen stock markets and currencies fall because of concern about when the US Federal Reserve would rein in policies that have underpinned its weak economy.
“Seventy-five percent of our revenues is in either dollars, or yen or Asian currencies, (so) we are very much affected by the decline and the weakening of those currencies,” Frans van Houten, chief executive of Philips, told Reuters Insider TV.
“But we have been able to offset that by innovations with higher gross margins and cost productivity.”
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Philips has made ₣856 million in total gross savings to date as part of its overhead cost reduction plan, of which ₣183 million was realised in the third quarter.
Third-quarter net profit climbed to ₣281 million from ₣105 million a year ago, while sales rose 3% on a comparable basis to ₣5,62 billion. Analysts in a Reuters poll had forecast a net profit of 209 million euros on sales of ₣5,74 billion.
Van Houten said Philips was committed to achieving its financial targets this year: Sales growth between 4 and 6%, a margin on earnings before interest, tax and amortisation of 10 to 12% and a return on invested capital of 12 to 14%.
But he warned the company was still at risk from turbulence in the United States over healthcare reforms because of the impact this has on hospitals placing orders for medical equipment.
