Lights flicker for Philips as quarterly losses hit £1bn

THE extent of the consumer slowdown was laid bare yesterday as one of the world's biggest electronics companies racked up losses of more than £1 billion in just three months.

Philips, whose products range from light bulbs and shavers to hi-fi gear and healthcare equipment, slumped to a €1.3bn (1.1bn) loss after it was also hit by hefty write-downs.

Revenues in the firm's consumer lifestyle division were down 2 per cent in its second quarter as falling sales of entertainment products, such as audio equipment and DVD players, were only partly offset by an "encouraging" rise in its other products including shavers and electric toothbrushes.

The results come just weeks after profit warnings at two of the group's key divisions due to weak consumer demand in Europe and the United States.

Hans Slob, an analyst at Dutch lender Rabobank, said: "This is a wider signal that the consumer is not really recovering."

Amsterdam-based Philips said its lighting arm, which ranks as the largest light bulb maker in the world, saw "disappointing" sales growth of 4 per cent.

The group as a whole took a €1.4bn impairment charge that pushed it into a loss in the quarter. This compares to a profit of €262 million a year earlier.

Overall sales declined 2.6 per cent to €5.2bn, while underlying profits, which do not include the impairment charge, fell by 27 per cent to some €370m.

Chief executive Frans van Houten said he "does not expect a material performance improvement in the near term" because consumer spending will remain weak as the global economy falters.

"The world seems to be a riskier place with a lot of volatility and overall gross domestic product (GDP] growth that has been slightly set back," he added.

But he made assurances that the group was addressing its issues by making €500m of cost savings and "instilling a new culture of entrepreneurship and accountability".

Although its consumer markets were weak, Philips' healthcare division, which makes equipment such as cardiac machines used in hospitals, showed "strong growth", with sales and earnings growth of 8 per cent.

Last month, the group warned that its underlying profits were to be hit amid worse-than-expected demand in western Europe.

Philips' warning shocked a market expecting a turnaround in the firm's consumer lifestyle division since it spun off its loss-making TV unit into a joint venture with China's TPV Technology earlier this year.

Some bankers and analysts have argued that the firm should get out of the entire consumer electronics arena because it has struggled to compete with lower-cost Asian manufacturers and faces tepid consumer confidence and weak economic growth in Europe and the US.

Van Houten, a restructuring specialist, scrapped Philips' earlier growth targets when he took over as chief executive in April.Yesterday, he set new medium-term goals, including sales growth of between 4 per cent and 6 per cent, and earnings before interest, tax and amortisation (Ebita) margins of 10-12 per cent for the group.