Philips shines on

By Roseanne Gerin

Philips Polska has been enjoying a buoyant export market for its light bulbs and television sets and making a profit to boot, despite the deep losses of its Dutch parent company.

Bogdan Rogala, president of Philips Polska, expects another year of profitability, though he believes 2003 will not be an easy one due to the ongoing economic downturn, especially in Europe and Russia where the firm exports most of its products.

The company recorded sales of €1.6 billion (zł. 6.8 billion) and a net profit for both home and export market sales in 2002, though Rogala declined to state the specific amount of profit. Philips Polska's total export sales amount to roughly about €876 million per year.

Meanwhile, the parent company continues to be plagued by heavy losses, recording a €69 million loss for the first quarter of the year compared to a €9 million profit in the first quarter of 2002. For the entire year 2002, Philips had racked up a record net loss of €3.2 billion, due to a huge loss in its semiconductor division, its lack of a global lead in a strategic industry large enough to withstand the economic meltdown and impairment charges as well as write-downs of the firm's outside investments.

While the parent company undergoes continuous restructuring and downsizing to try to return to profitability, Rogala doesn't expect any cost-reduction measures here since the operations are in the black. He also believes that there is little possibility that the parent company will follow the trend and move its Polish production plants to cheaper locales in Asia.

"It's not a black-and-white issue that it costs, for instance, six cents to produce a light bulb in Poland and four cents in China," said Eric de Graff, equities analyst at ING Barings in the Netherlands. "It's about the quality of staff, existing facilities and the support of the government in the form of tax breaks."

Poland is an important industrial base for Philips, which globally is the number-one maker of lighting products. The company has invested a cumulative total of about €351 million ($400 million) in the country since it established operations here in 1991. Today it has six factories around the country employing 6,500 workers. About 70%-80% of the company's core products manufactured here, including light bulbs, TV sets, coffee makers and electric kettles, are exported, Rogala said. Lighting products account for 40% of the company's production activities and are the firm's main revenue generator.

De Graff points out that one reason why Philips Polska is doing well is that the parent company absorbs substantial costs for research and development of new lighting technologies, which are not borne by the Polish operations.

Rogala added that the strengthening of the złoty in previous years had a negative impact on the company's results, whereas the weaker złoty last year had helped lift the company's bottom line.