Helped by a 42 per cent rise in other income, Philips India averted a loss in 1996 and posted a net profit of Rs 8 crore on net sales of Rs 1,485 crore.
The company, the largest multinational in consumer electronics proposed a reduced dividend of 10 per cent against 25 per cent last year. EPS too fell from Rs 5.0 to Rs 1.8.
K R Ehrnreich, managing director of Philips India announced the results, the company's worst ever since a Rs 13.4 crore loss in 1988-89, at a press conference in Mumbai yesterday. Ehrnreich said the poor performance is due to depressed market conditions and slow-down in economy.
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The company is now re-thinking its strategy in India. It has decided to put all fresh investments on hold.
The Kota project supposed to make lamps, bulbs and electrical accessories at a cost of Rs 300 crore has been scrapped. Philips' will continue to bear interest cost on its own investment of Rs 11 crore.
Against net sales of Rs 1,520 crore for 1995, Philips made Rs 1,485.6 crore, a 2.3 per cent drop. Other income rose 42 per cent to Rs 20.2 crore from Rs 14.2 crore. Total expenditure is Rs 1,405 crore against Rs 1,440 crore last year, partly due to cut in ad spend.
Interest costs have risen from Rs 27.2 crore to Rs 43.8 crore and depreciation has gone up from Rs 25.7 crore to Rs 31.5 crore. Profit before taxes showed a huge decline of 56 per cent, down from Rs 43.73 crore in 1995 to Rs 19.68 crore in 1996.
The second half performance is even worse than the first half, when Philips posted healthy results. Net profit was up 34.3 per cent over 1995 first half and gross sales were up 6.6 per cent.
To shake itself out of the mess, Philips is planning savage cost-cutting. Ad spending will be cut further and the ongoing VRS scheme will continue till employee costs are further reduced.
On the anvil are cut in imports which was 45 per cent of total purchase bill, reduction in interest costs and simultaneous increase in exports.
"Investments expected to generate returns in the future had a direct bearing on the increased depreciation and interest costs in the year", company executives explained.
The company incurred extra-ordinary expenditure of Rs 4.46 crore as a result of the change in accounting standards which necessitated "accounting for retirement benefits" on a mandatory basis.
The company's investment of Rs 70 crore, out of which Rs 20 crore was invested in information technology, is expected to bear fruit much later. For the moment, the company is forced to bear the impact of borrowing cost for its proposed expansions.
Defending itself, Philips said operational performance is favourable. The company has maintained market shares in all categories except audio, which slid by two per cent. Price erosion has reduced profitability, they said.
Notwithstanding its below par performance, the company will launch a series of audio and video products this year which is inclusive of 21 and 25 inch CTVs. The company is also likely to launch cell phones.