Philips lifts targets, to return $2bn to shareholders

Philips raised most of its financial targets and announced plans to return ¤1.5bn ($2bn) to shareholders, saying it would reap the benefits of a two-year revamp to focus on healthcare, lighting and consumer appliances, Reuters reported on Tuesday.

However, the Dutch group warned of tough conditions in many of its markets and the new goals fell short of some analysts’ hopes, sending its shares lower in early Tuesday trading.

“(The) new targets appear a little conservative,” Morgan Stanley analysts said in a research note, adding there had been hopes for a share buyback closer to ¤2bn.

Over the past two years, Philips has sold off much of its consumer electronics business — divesting its television, audio and video operations where it was struggling to compete with lower-cost Asian manufacturers, to focus on more profitable home appliances such as soup mixers and electric toothbrushes, as well as lighting for homes and offices, and healthcare.

Healthcare has become a particularly important market, with demand for new ultrasound and scanning products helping it to become the leading medical equipment supplier in the United States and a top-three producer of hospital equipment worldwide.

The group said on Tuesday it was targeting a margin of 11-12 percent on earnings before interest, tax and amortisation for 2014-2016, compared with the 10-12 per cent it is aiming for this financial year.

It is also targeting a return on invested capital of at least 14 per cent, compared with this year’s 12-14 per cent

“We see substantial opportunities for profitable growth for 2016 and beyond,” Chief Executive Frans van Houten said.

However, the group also kept its sales growth target of four  to six per cent unchanged and said it was feeling the impact of uncertainty over healthcare spending and reforms in the United States, weak economies and construction markets in Europe, as well as currency volatility in Japan, India and Indonesia.

“We can achieve the 2013 targets,” van Houten told journalists on a conference call. “It’s hard work and we have a lot to do in the fourth quarter.”

JP Morgan analysts said investors remained to be convinced Philips can deliver double-digit percentage growth in margins.

“Given investor skepticism on Philips, quarterly execution is more important than setting targets,” they said in a note.

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