Philips, Europe’s largest consumer electronics company, on Monday said it would push for an improved credit rating to allow it to take on debt for acquisitions, having posted third-quarter results ahead of expectations.
The company will “in the coming weeks” try to persuade Moody’s, the ratings agency, to raise from Baa1 its long-term debt rating, thereby matching the company’s A- rating with Standard & Poor’s.
Citing the relationship between a higher rating and the lower cost of borrowing, Pierre-Jean Sivignon, Philips’ chief financial officer, said: “We are definitely in discussions. We will do our best to get one notch higher.”
Mr Sivignon said an A rating was important because it would allow the company to increase gearing to up to 30 per cent. It currently has zero net debt and €4.3bn ($5.1bn) of cash on its balance sheet.
It has ambitious acquisition plans – particularly in the healthcare field where it has launched a new unit with a target of €1bn in revenue. It is committed to spending about €2.5bn on a share buy-back programme and for control of Lumileds, a high-technology lighting business.
Philips’ cause was helped by a 5 per cent third-quarter sales improvement to €7.63bn, with four of the company’s five main divisions delivering better year-on-year figures in all regions, and the fifth – semiconductors – posting a 7 per cent sequential gain in dollar terms.
Crediting innovative product launches across the board, Mr Sivignon said Philips would achieve its 7-10 per cent operating margin goal by the end of 2006, reaching a minimum 7 per cent from the fourth quarter next year.
He expected continued strong growth from all divisions, driven by product launches, barring semiconductors, where the cycle was “still impossible to read”.
The performance came in spite of little improvement in economic conditions, particularly mature western European markets.
Net income was almost €1.44bn, 12 per cent higher than a year ago. The figure included a €1.1bn gain from sales of shareholdings. At the operational level, group income was €442m, less than half that of a year ago but well above market expectations and better than the previous quarter’s €147m.