Philips reports profit slump, setback for medical sales

Company's second-quarter profit fell by 23%

Electrical appliance group Philips reported a setback in its switch to focus on healthcare technologies today, revealing that overall net profit slumped by nearly a quarter in the last three months.

But the group said that its traditional lighting business, driven increasingly by energy-efficient LED technology, was doing well.

Group second-quarter profit fell by 23% to 243 million euros ($329 million) from the equivalent figure last year, and the group warned that trading conditions for the whole of this year would be difficult.

Overall sales fell by 5.0% to 5.3 billion euros.

Group operating profit was 415 million euros, representing nearly 8.0% of sales.

"In the second quarter we continued to face headwinds, including ongoing softness in certain markets, unfavourable currency exchange rates and the voluntary suspension of production at our health care facility in Cleveland," chief executive Frans van Houten said in a statement.

Philips, a household name around the world for home appliances, has a strategy to focus more on advanced lighting technology, and on medical technology where margins are strong and less vulnerable to competition from emerging markets.

Last year, Philips announced the sale of its lifestyle entertainment branch, which makes stereos and DVD players, after selling its troubled TV-making arm in 2012.

But sales by the healthcare division fell by 4.0% in the quarter, and the group suffered from a decision to suspend temporarily production at a factory making medical scanners at Cleveland in the United States after the US Food and Drug Administration found shortcomings in quality control.

The group had reported the medical sales fall at the beginning of July. Underlying performance by the division as measured by earnings before interest, tax, and amortisation (Ebita) amounted to 225 million euros, showing a margin of 10% of sales down from 18 percent a year earlier.