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Philips warns that trade tariffs will mean 2019 margin goal miss

Philips warns that trade tariffs will mean 2019 margin goal miss
FILE PHOTO: Dutch technology company Philips. logo is seen at company headquarters in Amsterdam, Netherlands, January 29, 2019. REUTERS/Eva Plevier/File Photo -
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Eva Plevier(Reuters)
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By Bart H. Meijer

AMSTERDAM (Reuters) – Philips <PHG.AS> said on Thursday trade tariffs and poor results at its Connected Care arm meant the Dutch healthcare technology firm would miss its 2019 target for profit margin improvement.

Although Philips now expects adjusted EBITA margin to improve by 10 to 20 basis points, well off its previous 100 basis point goal, it said in a statement it was sticking to its 2020 target of improving comparable sales by 4% to 6%.

“We continue to see good growth momentum across our businesses,” Chief Executive Frans van Houten said, adding he was disappointed by a margin decline in its Connected Care division, which specialises in remote patient monitoring.

This was due to “due to increasing headwinds from tariffs and a delay in the impact of mitigating actions,” he added.

Earlier this year, Philips said the trade war between Washington and Beijing was forcing it to move hundreds of millions of euros worth of production from the United States to China, and vice versa, to avoid punitive tariffs.

Margins at the struggling Connected Care division not only dropped in the third quarter as tariffs hit, but also because factories lowered production due to weak demand.

Philips has repeatedly said rising life expectancy and associated chronic diseases would lead to growing demand for devices that allow patients to stay at home, while their data is monitored.

But Van Houten last year also said demand for such products would remain modest in 2019.

THIRDQUARTERRESULTS

Philips spun off its lighting and consumer electronics divisions in recent years, and is now purely focused on healthcare, selling products ranging from toothbrushes to medical imaging systems.

Thursday’s unscheduled statement also included preliminary third quarter results.

It said it expected sales to have increased 6% in the quarter to 4.7 billion euros ($5.16 billion), while adjusted earnings before tax, interest and amortisation (EBITA) increased 3% to 583 million euros.

Net profit is expected to have dropped 28% to 210 million euros, due to a 78 million euros impairment on connected care.

Philips reaffirmed its target for total comparable sales growth of 4% to 6% for 2020, with a 100 basis point improvement in the adjusted EBITA margin.

The company will release its full quarterly results on Oct. 28.

(Reporting by Bart Meijer; Editing by Muralikumar Anantharaman and Alexander Smith)

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