While beating analyst’s expectation of its revenues for the first quarter, although sales of its lighting division, which is set to come out with an IPO, later this year, has shrunk, its profitability has increased due to sales of higher margin lighting products.
Dutch Services and medical equipment giant, Philips, has disclosed that it is likely to approach the capital market with an initial public offering (IPO) for lighting division, thereby becoming the world’s largest lighting manufacturer, as a standalone company.
It has timed its announcement of its IPO with the release of earnings for the first quarter of this year, wherein it has reported an earnings before interest, taxes and amortization (EBITA) of 290 million euros, equivalent to $326 million, beating an expectation of industry analysts who had pegged its earning to be 257 million euros.
As per Frans van Houten, its CEO, the company’s outlook for 2016 will remain unchanged. It has further disclosed that it expects its earning to improve significantly during the second half of this year, due to “macro-economic headwinds” and present cost cuts, related to the separation of the lighting group.
In 2014, Van Houten had announced plans to separate its lighting division, which was its original business line in its founding year of 1891, saying healthcare technologies will be the company’s primary focus.
The process has taken its due course in time with company preparing for both a direct sale of its lighting division as well as an IPO, whichever was more beneficial to stakeholders.
“With equity markets’ sentiment improving compared to the first couple of months of the year, an IPO increasingly appears a more likely outcome. Philips expects to update the market on conclusions and next steps shortly,” said a spokesperson from Philips.
Although Philip’s share have appreciated by 6.8% this year, they have however underperformed the benchmark AEX index of Dutch blue chip shares.
Its lighting unit, which had been valued at around 5 billion euros has reported an EBITA of 102 million euros, with a turnover of 1.69 billion euros, during the first quarter of this year. It contributes 7% to Philip’s profits.
The majority of Philips earnings come from its healthcare operations, which have now been split into multiple divisions, so as to provide more clarity on the company’s operations after the split of the lighting division.
Its largest “personal health,” division includes products which most consumers relate and associate with the company such as electric shavers and toothbrushes.
Imaging equipment and medical scanners are clubbed into its second “connected” health services division, which include patient monitoring systems. Data crunching for hospitals make up its third.
Philips has attributed much of its growth to its HealthTech divisions which has clocked a comparable rise in sales by 5% to 5.51 billion euros.
Traditional bulk sales have retracted and although sales of its lighting divisions shrank by 2% the increase in its first quarter revenues from lighting sales can be reconciled with increased turnover of higher-margin LED lighting products, which now comprise 50% of its portfolio.
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