A visitor photographs a display of Ambilight flat screen televisions at the Koninklijke Philips NV trade stand at the IFA Consumer Electronics Show in Berlin, Germany, on Friday, Sept. 5, 2014. Samsung Electronics Co. unveiled its first smartphone with a display extending down one side as it counts on two new versions of its Galaxy Note devices to help fend off Apple Inc.'s push into large-screen mobiles. Photographer: Krizstian Bocsi/Bloomberg
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Philips is to turn off the lights 123 years after it made its first incandescent bulbs, under new plans to split its business in two and chase faster potential growth from health technology.

The Dutch electronics group said on Tuesday that it will spin off its lighting operations into a standalone company – ending more than a century as an electronics conglomerate – leaving a separate health technology business that makes everything from electric razors to hospital equipment.

Philips also said it would consider “alternative ownership structures with direct access to capital markets” for the new independent lighting group– including an initial public offering.

Frans van Houten, chief executive, claimed Philips’ management did not take the step lightly, given the company’s status as one of the world’s oldest electronics companies. “It is a momentous decision, given the strong heritage,” Mr van Houten said. 

The move will sever the historic link between the remaining Philips electronics business and its 19th century origins as a maker of incandescent lightbulbs. The Dutch group was founded in Eindhoven in 1891 by Gerard Philips and his father Frederick before growing into a global electronics conglomerate. “Good companies need to reinvent themselves to stay relevant,” said Mr van Houten.

Over the past 10 years, Philips has slimmed itself down in an attempt to improve its sluggish growth rate. It spun off its semiconductor division – now named NXP Semiconductors – in 2006 and sold its television business in 2012. But the company said adjusted earnings before interest, tax and amortisation for the remaining businesses in the second half of 2014 were likely to be “slightly below” the previous year. 

Mr van Houten said the current structure of the company still did not make sense, with little crossover between its healthcare and lighting businesses. “They do not have enough in common to justify the holding structure above them,” he argued.

As separate entities, the Philips “HealthTech” business would have had revenues of €22bn last year, while the separate lighting company would have posted sales of €7bn. HealthTech is also forecast to achieve higher margins and grow more quickly than the lighting division. Philips’ existing group targets show that it expects the operating margin at its HealthTech business to be between 14 and 15.5 per cent by 2016, while the lighting business will have an operating margin of between 9 and 11 per cent.

In addition, Philips has estimated that splitting the businesses will generate savings of €100m across the group by 2015, rising to €200m by 2016. Costs related to the restructuring will run to approximately €50m between 2014 and 2016. It will take about a year in total for the two companies to separate, Mr van Houten said.

A spokesperson added that it was “too early to say” whether there would be heavy job losses, but made clear that the move was not primarily aimed at cutting costs.

Mr van Houten said: “Giving independence to our lighting solutions business will better enable it to expand its global leadership position and venture into adjacent market opportunities.”

Philips’ lighting business has focused on offering services – encompassing the installation, operation and maintenance of lighting – to clients that range from stadium owners to city authorities operating street lights. 

Investors broadly welcomed the proposed split, sending shares in the Dutch group up 3.5 per cent to €24.35.

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