Philips on track as profits rise

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Philips, the Dutch electronics group, on Tuesday said it remained on track to achieve its medium-term sales growth and earnings margin targets as profits rose 37 per cent.

It added that during the remainder of the year, it would continue to explore opportunities to add to organic growth through “targeted acquisitions”.

In the first quarter Philips reported net profit of €160m ($196.5m), or 13 cents a share compared with €117m last time, or 9 cents a share. The company said the increase was primarily due to an improved performance of the main divisions, particularly semiconductors and lighting.

Sales increased overall to €7.34bn, a rise of 14 per cent. Adjusted for the effects of currency movements and takeovers and divestments, comparable sales increased by 10 per cent, driven by strong growth in all main divisions, the company said.

Earnings before interest and tax (ebit) were €335m compared with €207m last time, driven by higher sales and an improved performance particularly in semiconductors and lighting and were boosted by a €30m gain on the sale of Cryptotec, its encryption business.

Scott Geels, senior research analyst for Sanford C.Bernstein said: “Although medical, lighting and domestic applicances and personal care are moving slowly in the right direction, Philips has only started to address the problems with consumer electronics and semis (though a spin or sale removes that problem).”

Without strong improvement, Mr Geels added, Tuesday’s earnings levels did not support the current share price.

Gerard Kleisterlee, chief executive said: “We’re pleased that we are keeping momentum, with strong growth and solid performance across all our main divisions.”

He added recent acquisitions were starting to make a contribution to the company’s top and bottom line.

The company said it was expecting low to mid-single digit sequential sales growth in US dollar terms in the second quarter of 2006 for its semiconductor division, although costs were expected to be higher due to the set up of a separate legal structure.

Last year Philips announced plans to carve out its semiconductor division, opening up the possibility of a sale, partnership or flotation.

In lighting, which saw sales growth of 19 per cent, full-year sales were expected to show comparable growth of 6 per cent, it said.

In consumer electronics, its largest division in terms of sales, revenues grew by 13 per cent to €2.42bn. Philips said the second quarter would see the introduction of an extensive new range of monitors and flat TVs.

In the medical systems division the fall-out from the MedQuist acquisition continued. Without this, earnings before interest and tax would have increased slightly. The company bought the US medical services company in 2000, where a billing practice investigation triggered a write-down that cost Philips €576m in the fourth quarter.

Cash outflow from operating activities increased to €867m compared to €332m in the first quarter last year. The increase was entirely due to €582m additional funding for the UK pension fund.

Shares in Philips slipped 1.2 per cent to €26.51 by lunchtime.

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