Philips to find 60 per cent more savings

 
City A.M. Reporter
DUTCH consumer electronics group Philips announced more cost cutting yesterday, in an effort 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 €800m (£694m) from the €500m announced in July, and said it was confident of meeting its 2013 financial targets despite the global economic uncertainty.

Investors reacted well to the cost-cutting plans, sending Philips’ share price up as much as seven per cent in early trade, before it settled to close up 3.9 per cent at €12.70.

“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 day of presentations to investors in London.

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 four to six per cent sales growth, and an earnings before interest, tax, and amortisation 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 were on course 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 emerging economies.