Philips to axe 4,500 jobs as profits fall

Philips, the Dutch electronics group, will cut 4,500 jobs as third-quarter earnings slumped and the outlook for its products continues to be uncertain.

Royal Philips Electronics Q3 results
SalesNet profitEarnings per shareDividend

The job cuts are part of a plan by Frans van Houten, who took over as chief executive in April, to trim €800m ($1.1bn) in costs, in what he termed “a regrettable but inevitable step to improve our operating model to become more agile, lean and competitive”. About 1,400 of the job losses are to be in its domestic Dutch operations.

The downsizing comes amid sagging consumer confidence in Europe and the US, two of Philips’ core markets.

Speaking to the Financial Times, Mr van Houten said: “Europe is probably the region we are most worried about. We have not seen growth there this quarter.”

He called on European leaders to come up with a “convincing resolution” to the ongoing eurozone crisis which has dented confidence across the bloc.

Investors were also warned of a delay in the expected spin-off of Philips’ lossmaking television division into a joint venture with Chinese TV manufacturer TPV Technology.

Mr van Houten conceded that finalising the agreement, signed six months ago, took longer than he had originally anticipated.

“We continue to work together to come to definitive agreements soon. For the eventuality that a final agreement cannot be reached, Philips will consider its alternative options,” he warned.

The deal to sell the TV business was seen by analysts as long overdue and was among the first strategic moves put forward by the new chief executive in April. Some voiced fears that the delays could result in less favourable terms for Philips.

“The market has deteriorated since April, so some of the parameters will have changed, as well as the parties’ negotiating positions,” said Sjoerd Ummels, analyst at ING Bank.

Sales for the three months to the end of September fell from €5.46bn to €5.39bn a year ago, as a long-term erosion in developed markets was not fully compensated by new Asian demand. Net profit was down 85 per cent, from €524m to €76m. Net income per share came to €0.08, down from €0.55.

“The sales were in line with consensus, and some units such as lighting and consumer products exceeded analyst expectations, which had come down substantially ahead of the results release,” said Mr Ummels.

Mr van Houten’s tenure has included a profit warning and a €1.34bn second-quarter loss, prompted by impairment charges. As well as hesitant consumers, Philips has had to face higher raw material costs which have dented margins.

Philips shares have fallen by nearly 40 per cent in the past 12 months, to €14.8, despite a programme of share buy-backs. It has a market capitalisation of €14.6bn, near the lows of the post-financial shock recession in early 2009. Its shares on Monday gained €0.23 to €15.03 in afternoon trading.

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