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Electronics giant Philips' Q2 profits up 15%

But sales growth falls short of analyst expectations as sales of personal healthcare products decline in China

Philips now focuses more on high-end medical and health technology, such as computer tomography and molecular imaging, as well as household appliances.

The Hague

DUTCH electronics giant Philips Monday posted a 15 per cent hike in net profits for the second quarter, just months after listing its lighting division separately on the Amsterdam bourse.

Net profit from its continuing operations rose to 186 million euros (S$297 million) from April to June, compared to 161 million euros in the same period in 2017, the company reported.

Sales reached 4.3 billion euros, up some 4 per cent on last year, Philips said, highlighting that orders had also risen by 9 per cent. However, that was the bottom end of the company's targeted range.

Best known for the manufacture of light bulbs, electrical appliances and television sets, the Amsterdam-based company has gradually pulled out of these activities in the face of fierce competition from Asia.

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It focuses now more on high-end medical and health technology, such as computer tomography and molecular imaging, as well as household appliances.

"I am pleased with the continued strong performance improvement of the diagnosis and treatment businesses, driven by the breadth of our innovative product portfolio," chief executive officer Frans van Houten said in a statement.

The group, which sold its first light bulb a few years after it was founded in 1891, moved to list its Philips Lighting division, now known as Signify, in mid-2016 which joined the Amsterdam stock exchange, the top-tier AEX, in March this year.

Mr Van Houten added that the company, which employs more than 75,000 people in some 100 countries, stood by "our targets for the 2017-2020 period of 4-6 per cent comparable sales growth".

Earlier this month he warned that Philips was closely watching the outcome of the negotiations to govern Britain's withdrawal from the European Union in March 2019.

The group employs some 1,500 people in Britain, most notably at its baby care products-for-export factory at Glemsford in Suffolk.

"We estimate that the cost of the exported products will increase substantially under any scenario that is not maintaining the single customs union," Mr Van Houten said in a statement emailed to AFP in early July. Any changes in current free trade agreements, the single customs union and current EU product certifications "is a serious threat to the competitiveness of this factory", he added, warning that "we need to do worst case scenario planning".

Meanwhile, Reuters reported that temporary problems in China led to disappointing second quarter sales but sales growth is expected to strengthen in the second half of the year, Philips said on Monday.

Philips reported a 4 per cent increase in comparable sales last quarter to 4.29 billion euros. That was below the average of 4.9 per cent predicted in a Reuters poll, as sales of personal healthcare products declined in China.

Mr van Houten said this was mainly caused by a fall in demand for air purifiers, as China makes strides in its fight against air pollution, and by Chinese on-line sellers trimming their inventories.

"We are not worried by these developments", Mr Van Houten told Reuters in a telephone interview. "There are no structural problems in China. The second half of the year will be better, for our personal health division and overall."

Philips maintained its full year forecast of "mid single digit" growth for the personal health division, whose products range from toothbrushes to machines to relieve sleep apnoea. Sales of the division rose 2 per cent in the second quarter.

Mr Van Houten said his optimism for the coming months was mainly fuelled by ongoing strong growth in orders for hospital equipment, such as medical scanners and ultrasound machines, especially in China and the United States.

Hospital orders in these markets showed double-digit growth again in the second quarter, leading to an overall increase in new orders of 9 per cent.

"We have seen this rate of growth in orders for several quarters now," he said. "This tells us we are on the right track."

The strength in the diagnostics and treatment division helped adjusted earnings before interest, taxes and amortisation (Ebitda) rise 10 per cent to 482 million euros in the second quarter, in line with analyst expectations.

Mr Van Houten confirmed Philips' sales growth target of 4 to 6 per cent for this year, but said that trade worries and the unknown consequences of Brexit continued to cause uncertainty. AFP, REUTERS

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