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Philips shocks with 2014 warning

Tuesday, April 22, 2014 - 01:45

Apr.22 - Unfavourable currency effects, restructuring costs and weakness in China and Russia are to blame for an unexpectedly large dip in Q1 profits, Philips CEO Frans van Houten tells Reuters. David Pollard reports.

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The warning took markets by surprise and knocked seven per cent off Philips' share price in early trading. The Dutch healthcare, lighting and consumer appliances group says it'll struggle to post a rise in operating profit for the current year. Chief exec Frans van Houten. SOUNDBITE (English) PHILIPS CEO, FRANS VAN HOUTEN, SAYING: ''We are faced with multiple headwinds. Of course, we continue on our path to accelerate and improve our results but we were unable to offset all these headwinds in the first quarter.'' Fiercest of those headwinds: a stronger euro which alone, says Philips, has knocked five per cent off revenues. A slowdown in China's construction industry - that's hitting lighting sales. And Russia's crisis over Ukraine. SOUNDBITE (English) PHILIPS CEO, FRANS VAN HOUTEN, SAYING: ''The conflict in Russia means that the whole economy in Russia is under pressure. And we see that reflected in much lower healthcare business. But also the other businesses are affected.'' For the first quarter, the Dutch firm missed forecasts to report a 22 per cent drop in earnings. Sales were down too - investors describing the results as disappointing all round. Mike Ingram of BGC. SOUNDBITE (English) MIKE INGRAM, MARKETS ANALYST, BGC PARTNERS, SAYING: ''The profile of Philips' business is, you know, showing weakness very clearly in emerging markets - a lot of these currencies have themselves devalued - a lot of these consumers particularly on the healthcare and LED lighting side being extremely cautious. And also, you know, they still have this DVD and multi-media business which they want to get rid of, which is suffering remorseless margin compression, and that's why you're seeing this big miss.'' Fans of Philips point to a share price that overall during two years of restructuring has gained more than 80 per cent. Its boss says the company is ''undeterred'' by the latest results - and reaffirmed its 2016 targets.