Philips Moves its Focus to Healthcare as it Splits Off Lighting

NEW YORK ( The Deal) -- Royal Philips said on Tuesday it will split off and consider a sale of its €7 billion ($9 billion) lighting unit in order to focus on its larger health and consumer lifestyles businesses to capitalize on an expected convergence in the markets for professional and consumer healthcare equipment and services.

The Amsterdam-based company, whose roots go back to 1891, will combine its healthcare and consumer lifestyle divisions into a single unit called HealthTech, which derives €15 bilion of sales from products ranging from hospital equipment to electric toothbrushes.

Philips' lighting business, already the global leader, will become a standalone company for which Philips said it will consider "various options for alternative ownership structures with direct access to capital markets."

As an independent company, the lighting division "will be better placed to capitalize on the fundamental changes taking place in the industry, in which the value is shifting from individual products to systems and services," Philips said. It anticipates growth in LED lighting systems and services to more than offset the decline in conventional lighting.

"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 Philips CEO Frans van Houten, who has led the company since April 2011. He is expected to give further details of the shake-up in a London meeting with analysts and investors.

Philips shares advanced 3.3% on the Euronext Amsterdam exchange to €24.27, putting its market capitalization at just below €22.4 billion.

The company expects the new structure to bring €100 million in additional savings in 2015 and a further €200 million in 2016. Philips also said it expects to incur about €50 million in additional annual restructuring costs between 2014 and 2016.

In a revised outlook, Philips said it expects adjusted group Ebita for the second half to be "slightly below" a year earlier, with healthcare earnings down.

For 2016, Philips reiterated a projection of 4% to 6% compound annual sales growth, with an Ebita margin of 11% to 12% and a return on invested capital of more than 14%.

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