Koninklijke Philips NV (PHG) Prepared to Face the Headwind: Frans Von Houten

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Koninklijke Philips NV (NYSE:PHG) second quarter earnings showed a significant 23% drop in net profit. Their sales also went down by 6% when compared to second quarter of 2013. Most of the sales drop was attributed to currency effects. Frans Von Houten, CEO of Koninklijke Philips NV (NYSE:PHG), talked to Bloomberg TV from Amsterdam on their second quarter earning and his plans to turn the current situation around.

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Houten thinks that there are two major factors hampering the company’s growth. The currency exchange rate is the first major factor which impacts the sales directly. He points to the slow growth in China and reformation of healthcare in North America as the second major headwind to the company’s growth.

To instigate more growth of the company, they have shifted their focus on higher margin activities. In one such activity, their health care business came under the direct control of Houten. Houten thinks that all these decisions that they made in the second quarter will yield more success and growth in the future. He pointed at the huge Karolinska University Hospital deal in Sweden as one of the major outcome. He said regarding the restructuring of Healthcare business:

“By changing the management structure of our healthcare sector, we are effectively bringing in the three businesses there closer into the heart of Philips. The largest healthcare business is our Imaging Diagnostics business. It’s in fact larger than our consumer sector in its entirety and therefore it’s also logical that it reports directly to me.”

He added that with this change, they could go deeper into organization and directly impact manufacturing quality and customer satisfaction. He said that he is more optimistic about the potential of the healthcare business for future growth.

Houten said that the company has enjoyed a successful 5 years period in China when they had double digit growth which even crossed 20% in few quarters. However, for the last few quarters, the growth in China is down to lower single digit. He said that the company had to reckon with this slow growth for at least the next few quarters. He said that one bright spot is that healthcare orders turned positive in late second quarter.

Koninklijke Philips NV (NYSE:PHG) recently had partnerships with companies in Russia like MEDSI. Some people fear that Philips could suffer a severe blow in Ukraine due to this partnership mainly due to the tensions building between these two nations in the wake of Malaysian airlines being shot down in Russian airspace.

Houten talked about two Philips employees who were in that flight with their family and said that it is a big loss for the company. He also said that this is an issue that has to be addressed and resolved by governments. Since Philips is a global company which operates in 150 countries, he feels that such incidents happens in some countries and the issue has to left to the government to investigate and decide.

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