Philips profits slump 15% as medical markets flag

Electrical appliance group Philips reported a 15-percent slump in net first quarter profit on Tuesday, blaming a weak performance by its new strategic activities in healthcare equipment. Chief executive Frans van Houten said the figures reflected a "challenging start" to 2014 and warned of a tough year ahead. Philips' share price dipped by almost 7.0 percent on the Amsterdam stock exchange's AEX index in mid-afternoon trade. The Amsterdam-based group said Q1 net profit plunged to 137 million euros ($190 million) because of a fall in underlying profit on a 12-month comparison. The figure was however higher than the average  forecast of analysts polled by Dow Jones Newswires who had expected a net profit of 114 million euros. Sales on a comparable asset base were steady at 5.02 billion euros, but earnings before interest, tax and amortisation fell by 22 percent mainly because of a fall of profitability by the healthcare activities. Philips blamed the drop in healthcare -- which accounts for almost half its investments and is a fundamental pillar of its long-term strategy -- on lower demand in Russia and China, as well as a voluntary suspension of its production plant in Cleveland, Ohio. Notably in Russia, orders have been hit since the start of the Ukranian crisis, Van Houten said in a conference call.   "Healthcare comparable sales showed a low-single-digit decline, year-on-year," Philips added. The group said other factors behind the weaker results were unexpectedly high restructuring costs and unfavourable exchange rates. Philips, a world leader in the field of electrical appliances for the home, industry and local authorities, is in the process of refocusing much of its business on equipment for the medical sector where it has technological expertise and where margins are strong. Founded in 1891, the company which employs 112,000 people worldwide. 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. "Looking ahead, 2014 will be a challenging year, but we remain very confident of achieving our 2016 mid-term financial targets," Van Houten said.