Philips to find 60% more savings

Philips to find 60% more savings

Amsterdam: Dutch consumer electronics group Philips announced more cost cutting on Tuesday, to counter sagging consumer demand and weak global markets.

Philips, which is the world’s largest lighting maker, one of the three biggest makers of hospital equipment and Europe’s biggest consumer electronics producer, has been hit by rising raw material costs, government budget cuts in the healthcare sector and weak consumer and construction markets.

It raised its cost-cutting target to €800 million from the €500 million announced in July, and said it was confident of meeting its 2013 financial targets despite the global economic uncertainty.

Philips’ share price surged as much as 7% in early trade, and was up 2.78% at 01:20 pm.

“As a result of our efforts and despite economic challenges, we are confident that we can deliver on our 2013 financial targets," said Frans Van Houten, chief executive, in a statement ahead of a ‘capital markets day’ of presentations to investors in London.

Some analysts had feared Philips would give yet another profit warning on Tuesday because of the deteriorating economic outlook in the past few months, but Philips reiterated its 2013 targets of 4-6% sales growth, and an earnings before interest, tax, and amortization (EBITA) margin of 10-12%.

Philips said the cuts would be made mainly in IT, human resources, real estate and management.

Despite a rapidly deteriorating global TV market, Philips said plans to hive off its loss-making TV business to a 30/70 joint venture with Hong-Kong based monitor maker TPV, was on track and set to close by the end of the year.

Philips is heavily exposed to mature European and US markets and is increasingly trying to expand in the fast-growing Asian and emerging economies.

It reported an unexpected €1.3 billion second-quarter net loss on 18 July on writedowns at both its lighting and healthcare units due to weak consumer demand both in Europe and North America. It also lowered profit margin targets for its three core businesses for 2013 and said it would cut €500 million in costs by 2014.

Philips has struggled to compete with lower-cost Asian makers of consumer electronics, while tepid consumer confidence and weak economic growth in Europe and the US have hit demand for products ranging from televisions and audiovisual equipment to electric toothbrushes, as well as its street and home lighting systems.

Philips competes with Samsung and LG Electronics among others in consumer electronics, and with General Electric and Siemens in the hospital and lighting markets.