Philips has announced a 1.3 billion euro loss in the second quarter of this year, citing a slower than expected recovery from the recession and impairment charges. But shares prices actually rose by 2.2 percent on Monday morning, as investors feel reassured about the future direction of the company.

CEO Frans van Houten said the multinational will have to cut costs by 500 million euros to increase its profitability margin.

Bureaucracy to be wiped out
The company’s worldwide cost saving programme will clamp down on bureaucracy and overheads in particular. Production areas should not be affected by the cutbacks. Redundancies are likely to follow, “but it’s too soon to make concrete agreements,” a spokesman said.

Besides its struggling television production, turnover actually increased by four percent to 5.2 billion euros on a yearly basis.

Develop new markets
Mr Van Houten wants to invest 200 million euros each year in innovation and developing new markets. “We’re going to tackle the operational challenges head on and, at the same time, we’ll be investing in growth and instilling a new culture of entrepreneurship and responsibility,” he said in a statement.

Philip’s chief also announced a two-billion-euro share buyback programme. A buyback – the purchase of outstanding shares to reduce the number on the market – will enable the concern to invest in itself.

The move to pump more money back into the company and to focus on market exploration have apparently restored investors' confidence in Philips, as share prices rose this morning. At the end of June, share prices plummeted when analysts issued a warning about the poor performance in the second quarter.

European demand dwindles
Last month, Philips warned of plummeting second-quarter profits and sluggish sales growth at both its lighting business and consumer divisions, as consumer demand in Europe dwindles.

The multinational is optimistic about growth in the near future, predicting a four to six percent increase in turnover before 2013.

(jn/imm)

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