“Independence” For Philips Lighting Solutions Business

At a meeting with investors and analysts in London today, Royal Philips announced the next strategic step to capitalize on fundamental market changes, by creating two market-leading companies focused on the HealthTech and Lighting solutions opportunities. Both companies will continue to benefit from leveraging the Philips brand.

“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation,” said Frans van Houten, Chief Executive Officer of Royal Philips. “To become the global leader in HealthTech and shape the future of the industry, we will combine our vibrant Healthcare and Consumer Lifestyle businesses into one company. At the same time, giving independence to our Lighting solutions business will better enable it to expand its global leadership position and venture into adjacent market opportunities. Both companies will be able to make the appropriate investments to boost growth and drive profitability, ultimately generating significantly more value for our customers, employees and shareholders.”

The Lighting solutions business, already the global leader in lighting and serving a growing market estimated to exceed EUR 60 billion, will be better positioned to capitalize on the fundamental changes taking place in the lighting industry, in which the value is shifting from individual products to systems and services. As a stand-alone company, the Lighting solutions business will benefit from improved speed and agility in its operations to deliver innovation and capital market access to boost growth in connected LED lighting systems and services, more than offsetting the decline of conventional lighting. The creation of the Lighting solutions company follows the news that the company plan to combine Philips’ Lumileds (LED components) and Automotive lighting businesses into a stand-alone lighting components company.

In relation to the company’s strategic repositioning, Philips will start the process to transition its Lighting solutions business into a separate legal structure and consider various options for alternative ownership structures with direct access to capital markets. More information on this will follow in the course of 2015.

Each company will have a dedicated, focused and lean management structure, as a result of the planned integration of the relevant sector and group layers. The new operating structure enables additional cost savings across the enabling functions resulting in EUR 100 million additional savings in 2015 and further EUR 200 million in 2016. Philips expects to incur approx. EUR 50 million additional annual restructuring costs in the period 2014 till 2016.

Second-half 2014 financial outlook

The continued support from cost savings programs and Philips Excellence, a less negative impact from currency headwinds compared to the first half of 2014, and the gradual improvement in performance in Professional Lighting Solutions North America and Consumer Luminaires Europe are positively impacting the second half of 2014. Factors that are negatively impacting the second half of 2014 are additional costs related to the Cleveland facility with an EBITA impact of around EUR 100 million, provision related to certain legal proceedings, and softness in multiple markets. As a result, Philips’ adjusted EBITA in the second half of 2014 is expected to be slightly below the adjusted EBITA in the same period last year. In addition, the Healthcare reported EBITA in the second half of 2014 is now expected to be lower than the reported EBITA in the second half of 2013.

2016 financial targets

For 2016, Philips targets a comparable sales growth of 4-6%, an EBITA margin of 11-12% and a ROIC of more than 14%. Several incubator businesses are showing promise.
You can view the comments of Frank van Houten here.

23 Sep