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Philips earnings rise but cautious on outlook

January 28, 2014

AMSTERDAM (AP) — Royal Philips NV, the world’s biggest lighting maker, said Tuesday it sees a brighter future in selling lighting “as a service” to businesses rather than individual lamps to customers, as it reported a rise in fourth quarter earnings.

Despite an upbeat review of the company’s performance, CEO Frans van Houten said he is “cautious” heading into the new year, given a “softer order intake” in the fourth quarter amid uncertainty in emerging economies.

Shares fell 2.1 percent to 25.91 euros by midday trading in Amsterdam.

Philips reported a net profit of 409 million euros ($559 million), compared with a loss of 423 million euros in the same period a year earlier, when it was fined 509 million euros by the European Union Commission for price-fixing in the TV market.

Fourth quarter sales rose 0.6 percent to 6.80 billion euros. Comparing like-for-like businesses and stripping out the impact of currency shifts, sales rose 7 percent.

Van Houten said the company continues to shift its business model to focus on professional lighting and health care markets where it enters longer-term partnerships with governments and hospitals. He said these have both more stable service revenues and higher margins.

In lighting, where sales were up 8 percent on a like-for-like basis, he said growth was coming from major contracts such as building retrofits. The consumer market, where Philips competes with General Electric and Siemens, among others, was about flat. He said growth was strong in Asia, “very, very weak” in Europe and middling in the U.S., where demand for energy-efficient bulbs is not as high as in other regions.

LED lights now make up more than a third of the company’s total lighting sales, he noted.

Despite the turmoil in emerging market currencies of the past week, Philips reported a near-record 15 percent sales growth in emerging markets during the fourth quarter.

“We are well-positioned in growth markets: they need health care, they need lighting infrastructure, they need energy efficiencies” he said, adding that regional banks are helping the company’s customers finance purchases.

However, he said uncertainty about short-term prospects for emerging markets is not good for business.

“Social unrest as we have seen in Turkey or currency weakness as in Indonesia are not helping us,” he said.

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