By Sara Webb
AMSTERDAM Oct 21 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.
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 U.S. 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".
Philips has made 856 million euros in total gross savings to
date as part of its overhead cost reduction plan, of which 183
million euros was realised in the third quarter.
Third-quarter net profit climbed to 281 million euros from
105 million euros a year ago, while sales rose 3 percent on a
comparable basis to 5.62 billion euros. Analysts in a Reuters
poll had forecast a net profit of 209 million euros on sales of
5.74 billion euros.
Van Houten said Philips was committed to achieving its
financial targets this year: Sales growth between 4 and 6
percent, a margin on earnings before interest, tax and
amortisation (EBITA) of 10 to 12 percent and a return on
invested capital of 12 to 14 percent.
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
Philips healthcare division sells equipment ranging from
easy-to-use mobile scanners to more expensive ultrasound
equipment used in hospital emergency rooms or for detecting
Last month, Philips raised most of its financial targets,
aiming for a margin of 11-12 percent on EBITA for 2014-2016, and
a return on invested capital of at least 14 percent, while
keeping its sales growth target of 4-6 percent unchanged.
EBITA for the consumer business rose nearly 50 percent to
116 million euros in the third quarter, from 78 million a year
ago, while for the lighting division, EBITA surged more than
five times to 177 million euros, from 32 million euros. Philips
recently launched "Hue", a home lighting system controlled via a
smartphone app, to upgrade its range of consumer lighting
In healthcare, the rise was less dramatic, up 8 percent to
329 million euros.
Philips' rival in healthcare, General Electric,
reported third-quarter results on Friday showing a 7 percent
rise in profit at its healthcare division on flat revenue.
Philips shares jumped more than 6 percent to hit 26.08 euros
on Monday, the highest level since mid-2010.
The stock is up about a quarter since the since of the year
and trades at 14.6 times forecast earnings, a 12 percent premium
to the average of its peers including Electrolux and
Alstom, according to StarMine SmartEstimates, but
below Osram Licht at 15.8 times.
Philips also said its 1.5 billion-euro share buyback,
announced last month, would start on Monday.