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Philips posts third quarter net profit

Philips shares jumped more than 6 percent on Monday, the highest level since mid-2010.

The Dutch firm has shifted its focus towards the fast-growing healthcare equipment and energy-efficient lighting sectors. Picture: AFP

AMSTERDAM - Philips reported a near-tripling in third-quarter net profit, beating forecasts and pushing its shares to their highest since mid-2010 after two years of cutting costs, selling weak businesses and targeting new products at emerging markets.

The Dutch firm once known for its audio and video products has shifted its focus towards the fast-growing healthcare equipment and energy-efficient lighting sectors, bowing to competition from a plethora of Asian companies as consumer entertainment evolved to mobile internet devices.

It has also launched a slew of new and updated products in the profitable consumer appliances market - selling electric toothbrushes and shavers in Japan and China and air purifiers in China and Singapore where air quality is a concern.

In the process Philips has boosted profits and, via a tight handle on costs, insulated itself from currency volatility and slowing economic growth that have recently rattled other big firms, like Unilever, present in India and Indonesia.

Unilever issued a surprise sales warning at the end of September, fuelling worry that a slowdown in emerging markets would affect other consumer companies. Countries like India, Brazil and Indonesia have seen stock markets and currencies fall because of concern about when the US Federal Reserve would rein in policies that have underpinned its weak economy.

Philips has made €856 million in total gross savings to date as part of its overhead cost reduction plan, of which €183 million was realised in the third quarter.

Third-quarter net profit climbed to €281 million from €105 million a year ago, while sales rose 3 percent on a comparable basis to €5.62 billion.

ON POINT

Philips is committed to achieving its financial targets this year, namely sales growth between 4 and 6 percent, a margin on earnings before interest, tax and amortisation of 10 to 12 percent and a return on invested capital of 12 to 14 percent.

But the company was still at risk from turbulence in the US over healthcare reforms because of the impact this has on hospitals placing orders for medical equipment.

Philips healthcare division sells equipment ranging from easy-to-use mobile scanners to more expensive ultrasound equipment used in hospital emergency rooms or for detecting cancer.

Last month, Philips raised most of its financial targets, aiming for a margin of 11-12 percent on EBITA for 2014-2016, and a return on invested capital of at least 14 percent, while keeping its sales growth target of 4-6 percent unchanged.

In healthcare, the rise was less dramatic, up 8 percent to €329 million.

The stock is up about a quarter since the since of the year and trades at 14.6 times forecast earnings, a 12 percent premium to the average of its peers including Electrolux and Alstom, according to StarMine SmartEstimates, but below Osram Licht at 15.8 times.

Philips also said its €1.5 billion share buyback, announced last month, would start on Monday.