Philips to sell domestic appliance division to complete move into health technology
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.
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 it would carve out the domestic appliances business, which produces coffee machines, vacuum cleaners, and airfryers and generated €2.3bn 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,” said chief executive Frans van Houten.
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 €3bn, 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.
Philips shares fell as much as 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 €6bn from a year earlier, compared with an average forecast in a company poll of analysts for a 4.9% increase.
Adjusted earnings rose 10% to €1.07bn, 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 US-China trade war forced it to shift production and seek new suppliers.
Philips expects rising life expectancy and associated chronic diseases to increase demand for devices that allow patients to be monitored at home.
