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Philips healthcare orders rise, bringing relief after two-year overhaul

The logo of Philips is seen at the company's entrance in Brussels September 11, 2012.REUTERS/Francois Lenoir
The logo of Philips is seen at the company's entrance in Brussels September 11, 2012.REUTERS/Francois Lenoir

By Sara Webb

AMSTERDAM (Reuters) - Philips said orders at its healthcare division - now its most profitable after a strategic overhaul - rose more than expected in the second quarter thanks to new ultrasound and scanning products and strong demand from China.

Orders rose 7 percent compared with a year ago, reversing a 5 percent drop in the first quarter, and along with the rest of the company's results were better than expected after two years of job cuts, divestments and a change of business strategy.

Shares in the Dutch firm hit 24.405 euros in early trade on Monday, their highest since January 2011.

Philips has been selling off much of its consumer electronics business over the past 18 months - divesting its television, audio and video operations as it struggled to compete with lower-cost Asian manufacturers, to focus on more profitable home appliances, lighting and healthcare.

It now derives more than 40 percent of its sales and 70 percent of its EBITA (earnings before interest, tax and amortization) from healthcare. It is ranked the leading medical equipment supplier in the United States and a top-three producer of hospital equipment worldwide.

Chief executive Frans van Houten stuck to the company's full-year targets - sales growth between 4 and 6 percent, a margin on EBITA of 10 to 12 percent and a return on invested capital of 12 to 14 percent - and said he would update the market in September on the company's new financial goals.

"The...increase in healthcare equipment orders (North America swinging back to positive growth) should provide increased comfort forecasts can be met," said analysts at Kepler Cheuvreux.

"We think the full potential of the turnaround has yet to be reflected in Philips' share price. With further upside to margins, we believe there is also further upside for shares."

The jump in orders was driven particularly by the launch of new ultrasound, CT (computerized tomography) and MR (magnetic resonance) machines used to see inside of the human body. Overall the healthcare division reported second-quarter EBITA of 420 million euros ($552 million), up 36 percent.

"We can be a bit more optimistic, but it is certainly not safe waters," van Houten told an analysts' conference call.

In the short term, he said, the healthcare outlook remained volatile in Philips' two most important markets, owing to uncertainty over spending plans and healthcare reforms in the United States and yen weakness in Japan.

Philips' rival in the healthcare sector, General Electric , reported second-quarter results on Friday showing a 5 percent rise in profit at its healthcare division on flat revenue and said its U.S. healthcare equipment orders grew 9 percent versus the year-ago period.

Philips reported second-quarter net profit of 317 million euros, up from 102 million euros in the same period a year ago. Analysts in a poll commissioned by Reuters had forecast a net profit of 262 million euros on sales of 5.596 billion euros.

Quarterly sales rose 3 percent on a comparable basis to 5.65 billion euros, with strong growth in emerging markets including China, Russia and Latin America.

Its consumer business doubled EBITA to 82 million euros, driven by strong demand for appliances ranging from noodle-makers and soup mixers to electric toothbrushes and shavers.

At the lighting division, EBITA almost doubled to 153 million euros. Last year, Philips launched "hue", a home lighting system controlled via a smartphone app, as it tries to reinvent its range of consumer lighting products. The company will also provide lighting for the 2014 FIFA World Cup in Brazil. ($1 = 0.7611 euros)

(Reporting by Sara Webb; Editing by Sophie Walker)

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