* Shares drop 3 pct after reaching 6-year high this month
* CEO sees modest progress this year towards 2016 goals
* Company sees small dip in healthcare division orders
By Sara Webb
AMSTERDAM, Jan 28 Philips forecast a
slow start to 2014 as it grapples with currency volatility in
Turkey, Argentina, Indonesia and other emerging markets and weak
orders for healthcare equipment.
The turmoil in developing economies is a setback for the
Dutch healthcare, lighting and consumer appliances company,
which has reinvented itself since Frans van Houten took over as
chief executive in April 2011.
Philips had suffered from its exposure to stagnant or
austerity-hit markets in Europe and the United States, while its
TV, audio and video business had struggled for years to compete
with low-cost Asian rivals.
Van Houten has cut costs, sold weak businesses and targeted
new products at emerging markets, sending Philips shares up
nearly 60 percent in two years.
The stock was down more than 3 percent at one point on
Tuesday, but some investors were unfazed by van Houten's
cautious guidance, hoping for further performance improvements
under his management.
"They were generally solid figures, except for a couple of
small setbacks, including the currency issues," said Hans Slob,
a Rabobank analyst who still rates Philips shares a "buy".
"It is becoming a more agile ship, headed in the right
direction. That makes for a good investment case in the long
Philips shares, which touched 28.31 euros this month, their
highest since early 2008, were down 1 percent at 26.22 euros by
Van Houten said the turnaround was not over for the world's
biggest lighting maker. The company has met its 2013 full-year
targets and already set out slightly more ambitious financial
goals for 2016.
It is now targeting a 2014-2016 margin for earnings before
interest, tax and amortisation (EBITA) of 11-12 percent, return
on invested capital of at least 14 percent and sales growth of
The CEO warned that this year would see only a modest step
towards achieving those goals.
"What worries me are the currency fluctuations and the
unrest in some of the countries, for example Turkey, or the peso
in Argentina and the rupiah in Indonesia," van Houten told
Reuters Insider in an interview.
"These are of course facts of life that we have to live
with," he said. "I am cautiously optimistic for the long-term
economic development. It's just that in the near term we do see
The currency turbulence has forced Philips to look at ways
of staggering payments for orders, for example with customers
paying for lighting systems out of their energy savings, said
CORE PROFIT BEATS EXPECTATIONS
Philips has shifted its focus to fast-growing healthcare
equipment and energy-efficient lighting as part of its broad
restructuring. After a big push into countries such as China,
India, and Russia over the past couple of years, more than a
third of its sales now come from developing world economies.
"Philips' outlook indicates that margins will not show a
strong further recovery in 2014," ING analyst Robin van den
Broek said in a note to clients.
Philips reported better than expected fourth-quarter EBITA
thanks to improvements at all its businesses.
It has launched new and updated products, from electric
toothbrushes and air purifiers to ultrasound equipment used in
hospital emergency rooms.
Healthcare, now the biggest of Philips' three businesses,
reported a 1 percent dip in order intake in the quarter because
of weak demand in its main markets, reflecting uncertainty over
healthcare reforms in the United States and austerity measures
Fourth-quarter EBITA for the group was 884 million euros
($1.2 billion), compared with a loss of 50 million euros a year
ago. The company turned to a quarterly net profit of 412 million
euros from a loss of 420 million euros a year earlier. Sales
rose 7 percent on a comparable basis to 6.8 billion euros.
Analysts in a poll commissioned by Reuters had forecast net
profit of 455 million euros and EBITA of 839 million euros on
sales of 6.8 billion euros.