Thursday 18 December 2014

Ever-changing Philips lighting way for adaptation

Published 04/03/2013 | 05:00

The great thing about the mighty European businesses that we have featured in this column over the past few months is that they are constantly repositioning themselves and adapting to new, exciting markets.

You can't take your eyes off them or they will have scampered off to build, as the cliche goes, "the new mousetrap".

In the last decade that has been especially true of the flower of Dutch business, Philips of Eindhoven.

Philips is one of these companies that can deposit you slap in the middle of a time warp.

Depending on your age, the Dutch manufacturing giant can conjure up images of Polygram records, transistor radios, long-lasting washing machines and really stylish television sets. However, you are betraying your age if you think Philips means any of these anymore.

I remember the time when the main TV/audio products available in Ireland were Bush, Pye, Ferguson and Philips. Then the Japanese arrived, quickly followed by the Koreans, as Sanyo, Sony, Toshiba, and Panasonic and then LG became the big-name brands. Meanwhile, Philips continued to be a force in the market. But recently Philips threw in the towel and set up a joint venture for TVs with a Chinese company, TPV. The market loved this, the share price improved.

Philips is nevertheless a huge company by any yardstick. It currently employs 120,000 people worldwide, but plans to reduce headcount by 6,500.

Today its core divisions are healthcare, lighting and consumer lifestyle. The healthcare division is one of the top three suppliers in the world of hospital equipment. Philips' lighting division is the world's biggest. Finally, the company has a consumer lifestyle division having products such as shavers, coffee makers, food preparations and many other small appliances. Interestingly, Philips sold 10 million shavers in China in 2012.

It has not always been plain sailing for Philips or the Philips family. After its formation over 100 years ago it almost went bankrupt. But by 1907 it had developed a significant business in Philips lamps and bulbs.

In the 1920s the group was producing fluorescent lights and prior to the war radios and electric razors, the immortal Philishave. The advent of World War Two saw some of the family and directors flee to the US. They succeeded in managing the company from the US as the North America Philips Company but incorporated in the Dutch Antilles.

After 1945 the company (and family) moved back to Eindhoven, concentrating on both brown and white goods. Philips started to produce TVs in 1949 followed by gramophone records. It imposed on the world such cultural advances as the audio cassette and the radio cassette-recorder. It also succeeded in disturbing our tranquillity with compact discs, video discs and DVDs.

Philips was out of white goods by 1991 when the washing machine business was sold to Whirlpool. Before the turn of the century, the music business was gone, too. Its semiconductor business was sold to private equity fund KKR in 2004. Its long-awaited exit from TV/audio, signaled in the mid 2000s, finally occurred last year. As a result, the company has been repositioned.

The company's current focus is on its 'Accelerate' programme (2011-2014). Its objective is to save €1bn in overheads, slim the organisation and be more entrepreneurial.

The healthcare and lighting businesses are showing steady growth but the consumer lifestyle is static. However, it is still occasionally burdened by its past. For instance it has had to provide €500m to cover an EU fine for cartel practices (another word for price-fixing) for its TV products.

The company's strategy of repositioning itself has helped its revenue and share price. Its revenue in 2012 was €25bn, up from €22.5bn. Profits were €230m against a loss of €1.3bn in 2011. The share price improved from €14 last year to €23 currently. I admit selling too early but talk of headwinds and challenges spooked me. I will, however, monitor 'Accelerate' with interest.

Dr John Lynch is a former chair-man of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent

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