European slump prompts profits warning by Philips

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Philips, the lighting and electronics specialist, became the latest company to be hit by a sharp downturn in consumer spending in Europe as it issued a profits warning yesterday.

The Dutch company vowed to implement a wide cost-cutting programme after admitting that its consumer electronics division faced "ongoing weak demand", particularly in Western Europe.

It is also suffering from falling licence revenues and is scaling back its TV operation. This will result in a low single-digit sales fall, despite a strong performance from its personal care and health unit. Overall, the division expects an operating profit, before amortisation, of €50m (£45m) in its second quarter, a huge drop on the previous year's €173m.

Philips expects its lighting unit, a key supplier for hospitals, to post low single-digit sales growth in its second quarter of 2011 because of weaker than expected demand. It estimates operating profit during that period will be about €85m (£75m) – 60 per cent lower than the €210m it earned in the same period last year. Philips will unveil "further decisive actions shortly", including company-wide cost cuts.