Philips feels the pinch

Press, 25 February 1989, Page 31

Philips feels the pinch

NZPA-Reuter Eindhoven Dutch electronics giant, Philips, has reported that its profits last year were hit by cut-throat competition in Asia. But chairman, Cor van der Klugt, said earnings this year were set to rise substantially as a radical programme to reshape the company started to bite. “Philips took a definite step forward in 1988 and we expect another step ahead in 1989,” van der Klugt said. NV Philips Gloeilampenfabrieken’s net 1988 profit was 1.1 billion guilders ($NZ844.6 million), 242 million guilders (SNZI9I.B million) higher than 1987. But profits were inflated by a 525 million

guilder (5NZ416.5 million) one-off partial sale last year of its “white goods” business- to U.S. appliances giant, Whirlpool Corp. Production alone generated 531 million guilders (5NZ421.5 million) in net profits, eight million guilders (SNZ6.3 million) less than in 1987. Philips maintained its two guilder a share dividend, but offered shareholders the option to get one new share for each 25 they already own instead of cash. Van der Klugt said competition from consumer electronics producers in Asia was largely to blame for disappointing operating profits in 1988. Aggressive pricing meant consumers paid

three per cent less last year for products like television sets, videos and hi-fi equipment and the price drop shaved profit margins, he said. “We had to fight hard and the battle is not over yet. But all consumer electronics firms have suffered from lower prices and even our Japanese competitors were unable to reach the (record) profit levels of 1985,” he said. On the bright side, strong economic growth worldwide and favourable exchange rates boosted Philips’ sales. Philips spent 476 million guilders last year on a major restructuring plan and would spend another 300 million in 1989,

he said. The plan was launched in 1987 and aims to strengthen key product divisions, improve central planning from Eindhoven and reduce the autonomy of subsidiaries around the world. Philips slashed 8500 jobs last year as part of the plan. “In the past, Philips’s strength was its knowledge of the countries it had subsidiaries in. But today decisions must be taken globally by the product divisions,” van der Klugt said. "People have become more competitive ... the' plan is starting to bite,” he said, adding it had helped the company save 900 million guilders last year.