By Robin van Daalen
AMSTERDAM--The euro's strength and weaker demand in China and
Russia made Philips NV more cautious for the remainder of the year,
as it reported a 14% drop in first quarter net profit caused by
currency losses and a lower result from its health-care
business.
Net profit for the period ended March 31 was EUR138 million
($190.5 million), compared with EUR161 million in the year-ago
period.
Sales slipped 5% to EUR5.02 billion, from EUR5.26 billion in the
first quarter of 2013. Stripping out currency effects, sales were
flat on an annual basis; there was growth in Philips's consumer
electronics sales but sales were flat at the lighting business and
declined in its health-care business.
"Our first-quarter financial results reflect a challenging start
to the year," Chief Executive Frans van Houten said Tuesday,
pointing to the impact of currency losses, market headwinds in
China and Russia and the effect of a voluntary suspension at the
Dutch conglomerate's health-care production facility in
Cleveland.
Philips, which offers a range from kitchen appliances to
hospital scanners and lighting, in January expected to make a
modest step this year toward reaching its financial targets for
2016, but now said it would be difficult to improve its performance
this year.
Mr. van Houten blamed the stronger euro against a number of
emerging market currencies, the slowdown of the Chinese economy
denting demand for its lighting products and the rising tensions
between the West and Russia following Moscow's decision to annex
the Ukrainian region of Crimea. "The conflict with Russia has
strongly affected demand in all three of our businesses," Mr. van
Houten said.
Despite the grim outlook, Philips said it remains confident of
achieving its 2016 financial targets.
Philips aims to reduce costs by EUR1.5 billion by the end of
next year in a restructuring and cost-cutting program it started in
the third quarter of 2011, shortly after Mr. van Houten took the
helm. Improvements of Philips's purchases of raw materials and
parts needed for production are expected to drive down costs by a
further EUR1 billion.
Philips wants to increase margins to 11% to 12% for the period
until the end of 2016 on average annual sales growth of 4% to
6%.
Write to Robin van Daalen at Robin.VanDaalen@wsj.com
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