January 28, 2020 / 6:16 AM / a month ago

Philips bids farewell to home appliances to sharpen health focus

AMSTERDAM (Reuters) - Philips will complete its transformation to a health technology business with the sale of its domestic appliances division, which no longer fits with the company’s range of hospital equipment and personal health products.

FILE PHOTO: Dutch technology company Philips' logo is seen at company headquarters in Amsterdam, Netherlands, January 29, 2019. REUTERS/Eva Plevier

Once a sprawling conglomerate, Amsterdam-based Philips has narrowed its focus in recent years, spinning off the lighting and consumer electronics divisions for which it was previously best known.

Philips said on Tuesday it would carve out the domestic appliances business, which produces coffee machines, vacuum cleaners and airfryers and generated 2.3 billion euros ($2.6 billion) in sales last year, in the coming 12 to 18 months.

“This business is not a strategic fit for our future as a health technology leader,” Chief Executive Officer Frans van Houten said.

He added that all options remained open for the division, which he said had a double-digit profit margin that was “slightly less” than the average for Philips.

ING analyst Marc Hesselink said a “quick and dirty” calculation valued the division at around 3 billion euros, assuming a 10% profit margin with a price tag of 12 times gross profit.

“This was a, in our view, widely expected move...to focus even more on health tech”, he said.

DISAPPOINTING RESULTS

Philips shares fell 3% in Amsterdam, with analysts pointing to fourth-quarter results that missed expectations, and disappointing sales growth in all sectors.

Comparable sales increased 3% to 6 billion euros from a year earlier, compared with an average forecast in a company poll of analysts for a 4.9% increase.

Adjusted earnings before interest, tax and amortisation (EBITA) rose 10% to 1.07 billion euros, also slightly below expectations.

Philips reaffirmed its 2020 targets for a 100 basis point improvement in adjusted EBITA margin and a 4 to 6% increase in comparable sales, but said it expected a slow start to the year with growth likely to be dented by China’s efforts to contain a coronavirus outbreak.

The company has around 8,000 employees in China, many of whom have been ordered by authorities to stay at home.

Philips fell far short of a similar 100 basis point profit margin improvement goal in 2019, having warned in October that it would miss the target as the U.S.-China trade war forced it to shift production and seek new suppliers.

The already struggling connected care business, which specialises in remote patient monitoring, was the hardest hit and Van Houten said that following a significant fall in margins, the division’s leader Carla Kriwet would leave the company and be replaced by Philips veteran Roy Jakobs.

Philips expects rising life expectancy and associated chronic diseases to increase demand for devices that allow patients to be monitored at home, but sales at the connected care unit have in recent years lagged those of bigger divisions selling large medical equipment and personal care devices.

($1 = 0.9014 euros)

Reporting by Bart Meijer; Editing by Louise Heavens, Kirsten Donovan

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