Philips profits fall 28 per cent to €265m as families pull the plug on spending

Philips cast a gloom over the consumer electronics industry as it reported a higher-than-expected fall in profits and warned of slowing growth in its mature markets.

The Dutch maker of light bulbs, DVD players and coffee machines said its earnings before interest, tax and amortisation fell by 28 per cent to €265m (£212m) in the first quarter of the year.

Blaming the poor figures on a near-doubling in losses at its televisions business, Philips said TV sales had been hit by intense competition in the US, where it is leaving the market and licensing its brand name to Funai Electric of Japan. But the division also made a loss in Europe. The chief executive, Gerard Keisterlee, said: "Our results are clouded, more than we like, by the adverse situation in our TV business, significantly lower incidental licence income and some acquisition-related charges."

The company's share price fell by 3.3 per cent to €23.11.

Mr Keisterlee said the group's consumer lifestyle division would feel continued margin pressure in its TV arm, which would lose money this year. He expects it to return to profit next year after the Funai deal, and with demand for TV sets being driven by the Beijing Olympics and the European football championships.

The bad news from Europe's biggest consumer electronics maker follows the unexpected fall in profits announced by its US rival, General Electric, on Friday. Philips said it expected "some mature economies" to weaken because of the global credit crisis. "It is a situation we are watching, the economy, and if there are things to be done we would do them without wasting time," said the Philips finance director, Pierre-Jean Sivignon.

Philips has no plans to leave the European television market at present but could scale back its spending on advertising or research and development.

The company's report coincided with the worst British retail sales figures for three years. They were down 1.6 per cent in March from a year ago, despite Easter falling early, the British Retail Consortium said. Families hit by the rising cost of living were reluctant to spend without heavy discounting to tempt them, the BRC explained. "Here is the strongest evidence yet that customers are making serious economies and are increasingly concerned about the future," added Stephen Robertson, the consortium's director general.

Food sales slowed after two strong months, while clothing and footwear recorded their worst performance for at least eight years. Homewares and furniture sales fell further despite heavy discounting.

There are growing fears that the turmoil in the financial markets and the rising costs of food and energy will slow consumer demand further, hitting corporate profitability and exacerbating the economic slowdown.

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