Philips to split off lighting business

Philips has announced plans to set up two companies focused on lighting solutions and healthcare and consumer lifestyle.

The lighting solutions company will capitalise on the fundamental changes taking place in the lighting industry, in which the value is shifting from individual products to systems and services. The business registered sales of €$7 billion (AU$10.15 billion) in 2013.

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.

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 recently announced plan to combine Philips’ Lumileds (LED components) and automotive lighting businesses into a stand-alone lighting components company.

Because of the planned integration of the relevant sector and group layers, each company will have a dedicated, focused and lean management structure. The new operating structure enables additional cost savings across the enabling functions resulting in €100 million (AU$145 million) additional savings in 2015 and a further €200 million (AU$290.15 million) in 2016. Philips expects to incur approximately €50 million (AU$72.53 million) additional annual restructuring costs in the period 2014 till 2016.

The HealthTech company combines healthcare and consumer lifestyle to capitalise on the convergence of professional healthcare and consumer end markets across the health continuum, from healthy living and prevention to diagnosis, treatment, recovery and home care. The healthcare business registered sales of €15 billion (AU$21.77 billion).

“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 company hopes to capitalise on the convergence of professional healthcare and consumer end markets across the health continuum, from healthy living and prevention, to diagnosis, treatment, recovery and home care. This is illustrated by the rising engagement of consumers to proactively monitor and manage their health and by increasing pressures on the healthcare system to create new models of care along the health continuum to deliver better and affordable care. The healthtech businesses already have leading positions in, for example, oral healthcare, healthcare informatics, ultrasound diagnostics, cardiac care and home healthcare, and serve a total addressable market estimated to exceed €100 billion (AU$145 million).