Philips pulls plug on audio and video business

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European electronics giant Philips is switching its focus to more profitable home appliances and healthcare products after agreeing to sell its audio and video business to a Japanese firm for €150 million (£130m).

The Dutch group – inventor of the audio cassette and co-inventor of the compact disc – had already hived off its television business by setting up a joint venture with Hong Kong-based TPV last year. It has struggled for years to compete with low-cost Asian consumer electronics.

With increasing numbers of consumers going online for music, films and games rather than buying CDs and DVDs, Philips decided to get out of home entertainment even though it was profitable last year, chief executive Frans van Houten said, adding that the business was shrinking and “margin dilutive”.

In future, the consumer division will focus on appliances such as shavers, toasters, electric toothbrushes and coffee makers.

The group’s cutting-edge technologies are now mostly concentrated in the lighting sector, where it is the world’s largest manufacturer. In the healthcare market, Philips competes with the likes of General Electric and Siemens in making medical imaging equipment.

Analysts welcomed the deal with Japan’s Funai Electric as “an important divestment” that could fan hopes of further disposals in the consumer arm.

Philips, which will also receive licence fees from Funai, reported a fourth-quarter net loss of €355m – widening from €160m a year earlier. It highlighted previously flagged provisions and charges.

The group had warned last month that it would take a provision of €509m to cover a European fine for cartel practices in its television business, and that restructuring charges would be higher than previously estimated.

Philips reported three consecutive quarters of better-than-expected net profit in 2012 and the fourth-quarter results showed that underlying profit improved significantly following job cuts, disposals and a focus on core businesses.

Van Houten said: “Our operational results improved across all sectors, as a result of increased sales, overhead cost reductions, and gross margin expansion.”

Since taking over in 2011, Van Houten has vowed to cut 6,700 jobs, or about 5 per cent of Philip’s workforce, by 2014.

He said “challenging” conditions during the past year had hit orders and as a result he expects 2013 sales to start slowly before picking up in the second half.