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Philips warns of difficult 2014 after slowdown wipes sales growth

22 April 2014

Philips warned today that it would struggle to post an increase in operating profit for 2014 after its first-quarter sales growth was wiped out due to falling demand in China and Russia, combined with the impact of a strong euro.

The Dutch healthcare, lighting and consumer appliances group posted a 22-per cent earnings decrease before interest, tax and amortisation (EBITA) to 314 million over the three months to end-March.

According to chief executive Frans van Houten, he was still confident that Philips would hit its operating profit margin target of 11-12 per cent by 2016, though progress towards the goal this year would be hard.

He told journalists during a conference call, that the company had modified its outlook saying it was a challenging year and thereby implying that an improvement this year would be difficult.

The company's shares gained 80 per cent during an extensive two-year restructuring, but fell 7 per cent in early trade.

Reuters quoted analyst Gael De-Bray at Societe Generale as saying almost everything was disappointing. He added, organic growth should have been around 3 per cent and it was flat, the free cash flow was negative. He added there was nothing positive in the message today.

According to the company, the strength of the euro would make 2014 a ''challenging'' year.

Houten also said in the conference call that the euro had become stronger. He added, the effect of currency movements on the Amsterdam-based company was bigger than expected in the first quarter, Bloomberg reported.

Philips echoes the sentiment of other companies such as decorative paints maker Akzo Nobel NV as also software company SAP AG in saying that the strong euro was weighing on its growth as sales from outside Europe were worth less when brought home, making it more difficult for van Houten to revamp Philips. 

''2014 will be a challenging year, but we remain very confident of achieving our 2016 mid-term financial targets,'' Philips said in its statement today.

The company has said three months back that  progress toward 2016 goals for profitability would be ''modest'' this year.

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