Philips sets out plan to slash costs

19 July 2011

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19 July 2011 | Angeline Albert    

Philips is embarking on a €500 million (£440 million) cost-cutting programme to help tackle high raw material prices, according to its financial report for 2011’s second quarter.

The electronics giant’s short-term goal is to save €250 million (£220 million) during 2011/12 by reducing its operational complexity with savings in IT, property and other areas. Its medium-term goal for 2013/14 is to save a further €250 million (£220 million) with more reductions to overhead costs through improved IT.

The financial report, published yesterday, showed sales for the group fell from €81 million (£71 million) in quarter two 2010 to €63 million (£55 million) in the same period in 2011.

In the lighting division, for example, Philips said “operational issues included pressure on margins caused by raw material price increases”, which resulted in a year-on-year fall in the company's earnings before the deduction of interest, tax and other expenses.

Frans van Houten, president and CEO of Royal Philips Electronics, said: “Our second quarter results were impacted by near-term operational challenges, weaker markets and a significant impairment charge. We do not expect a material performance improvement in the near term as operational risks and issues remain, and also considering the current uncertain economic environment. We are addressing our operational issues, while investing for growth and instilling a new culture of entrepreneurship and accountability.”

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