Philips reveals more cost-cutting measures to counter the global downturn

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 euros (£690m) from the 500 million euros announced in July, and said it was confident of meeting its 2013 financial targets despite the global economic uncertainty.

“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.

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

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-euro second-quarter net loss on July 18 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 euros in costs by 2014.

Philips has struggled to compete with lower-cost Asian makers of consumer electronics.