Philips beats on Q3 profit, but takes a hit in EM

Reuters with CNBC.com
Time needed for EM growth recovery: Philips CEO
Time needed for EM growth recovery: Philips CEO

Philips' sales in emerging markets (EM) were hit in the third quarter, the company said in its latest results, and the company's chief executive told CNBC Monday that it would take time to see a recovery.

"It will take some time, in my view, before the emerging markets are all back at their historical growth rates. Of course, we see the impact of currency volatility which is difficult to deal with. Nevertheless, I'm pleased with the 22 percent results improvement despite all that currency volatility," Chief Executive Frans van Houten said.

Growth in central and eastern Europe and Asia Pacific was offset by a decline in China, the Middle East and Turkey, the company said in its latest report.

"With 30 percent of revenue in emerging markets, we are exposed to the currency volatility in those countries and so hedging, taking protection on that currency exposure in emerging markets, is very expensive, and as a result we can not always do it."

However, speaking to CNBC, Van Houten said he was "very pleased by the resilience of our mature markets."

Philips on Monday reported better-than-expected quarterly profits on cost cutting and strong orders for its U.S. healthcare business. However, the company said the sale of its Lumileds division, worth $3.3 billion, is in doubt.

The Dutch company said the sale of Lumileds, which makes automotive lights and LED components, to a consortium of mostly Chinese investors had run into unexpected opposition from the U.S. government.

Third-quarter net income swung to a profit of 324 million euros from a loss of 103 million euros in the same period a year earlier while sales were up 2 percent to 5.80 billion euros from the same period a year earlier. In the third quarter of 2014 Philips booked losses related to the temporary closure of a factory in Cleveland, Ohio.

Analysts polled by Thomson Reuters had expected net profit of 191 million euros and sales of 5.80 billion euros.

Koen van Weel | AFP | Getty Images

Philips repeated its full year guidance for "modest" sales growth and an improved operating profit in 2015.

Philips announced in March it would sell 80.1 percent of the Lumileds business to Go Scale Capital, an investment fund run by GSR Ventures and Oak Investment Partners.

But the Dutch company said on Monday the Committee on Foreign Investment in the United States (CFIUS) had expressed "certain unforeseen concerns" about the deal. It did immediately say what those concerns were.

"Philips and Go Scale Capital will continue to engage with CFIUS and will take all reasonable steps to address its concerns, but given these, the closing of the transaction is uncertain," Philips said.

Most of Lumileds' sales and profits come from its automotive components business, but it also includes LED production and a large portfolio of LED patents. Investors in Go Scale include GSR Capital, Nanchang Industrial Group, and Asia Pacific Resource Development, all based in China.

Philips said the rest of its lighting business -- which is the world's largest maker of lights - is still on track for an initial public offering or sale in 2016.