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Philips, Europe’s largest consumer electronics company, on Wednesday wrote-off the remaining book value in a South Korean joint-venture, citing deteriorating demand for televisions built on old-style technology coupled with falling prices for popular hi-tech alternatives.

The Dutch group announced a €418m ($496m) non-cash write-down on its 50 per cent stake in LG.Philips Displays, a five-year-old equal partnership with LG Electronics, the South Korean electronics group. 

The charge is broken down as approximately €128m to write-off the remaining book value of the stake and €290m related to the impact of currency conversion from dollars to euros. In addition Philips will take a fourth-quarter cash charge of €42m, in relation to guarantees provided to LG.Philips Displays' banks.

Philips said the event would not impact equity. Furthermore, while it will retain its stake in the struggling joint-venture, it pledged not to invest additional money in a business which made a profit of Won1.66bn on sales of Won8.33bn last year.

Earlier LG.Philips Displays said it would book a non-cash charge of $725m in its fourth-quarter results because of the slowdown in demand for cathode ray tubes. Philips shares were barely affected by the announcement, adding six cents to €26.63.

"Capacity increases and very strong price erosion of flat panel TVs have created adverse market conditions for CRTs in advanced markets such as Europe," LG.Philips Displays said in a statement.

The price difference between old-style cathode ray tube televisions and more expensive LCD tvs is closing rapidly, making flat-screens more affordable and therefore increasingly popular with consumers in mature markets.

The news came as Philips, whose products range from toothbrushes to hospital scanners, heard it had not yet secured a sought-after credit rating upgrade that would ease the path to raising debt to fund acquisitions.

While Moody’s, the ratings agency, was upbeat on Philips’ progress in becoming more resiliant and less volatile through widescale restructuring, it held off upgrading its Baa1 debt rating.

However, in changing its rating outlook to positive from stable, Moody’s hinted that an upgrade may come soon. Among the factors it will weigh is evidence that operating margins are increasingly sustainable at around five per cent.

Philips said in October a move by Moody’s to nudge the rating one notch higher to the equivalent A- rating it has from Standard & Poor’s, would create headroom to raise debt to finance acquisitions, particularly in the field of healthcare.

Copyright The Financial Times Limited 2017. All rights reserved.
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