DUTCH ELECTRONICS manufacturer Philips reported a sharp drop in profits in the fourth quarter compared to a year earlier, as it struggled with the weak European economy and speed bumps in the global shift to LED lighting.

Sales rose 3 per cent year on year to €6.7 billion, while the margin of operating earnings before interest, taxes and amortisation (Ebita) fell to 7.5 per cent from 14.1 per cent in 2011.

The results were in line with the reduced expectations Philips indicated in a profit warning three weeks ago.

Frans van Houten, chief executive, said the company had been hit by “weak European sales, postponement in deliveries of existing orders in our healthcare sector, and inventory corrections and other operational issues in our lighting business”.

The company reported a net loss for the quarter of €160 million, due to an impairment charge of €128 million in the lighting business and to losses at its now spun-off television division.

Mr van Houten, who took over the reins in April last year, has accelerated the company’s transition away from its traditional consumer audio-visual business, where it faces unmatchable competition in east Asia. The company’s strategy is to emphasise its growth sectors in healthcare equipment and in lighting, where it is the world leader.

But the healthcare division has suffered from European government austerity measures, which have slowed purchases at hospitals. Sales in the division rose just 3 per cent year on year.

Lighting growth has disappointed due to the ongoing slump in construction and to difficulties in the supply chain as the company transitions to new technology bulbs, which last longer and use different manufacturing techniques.

Comparable sales in lighting were up 7 per cent year on year, with strong growth of 37 per cent in LED bulbs.

Philips's third division, consumer lifestyles, saw relatively strong sales growth in its personal health and grooming and domestic appliances sectors. – Copyright The Financial Times Limited 2012