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Philips to spin off lossmaking TV division
By Matt Steinglass in Amsterdam
Published: April 18 2011 10:47 | Last updated: April 18 2011 10:47
Philips announced it will spin off its lossmaking television division into a joint venture with Chinese TV manufacturer TPV Technology, resolving
analysts’ long-standing concerns that the division was dragging group results down.
The joint venture, which will have a licence to market televisions in Europe under the Philips brand, was the first major move by new chief executive Frans van Houten, who took over at Philips on April 1.
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Philips announced the deal along with its first-quarter results for 2011. The group reported sales of €5.257bn ($7.5bn) in the first quarter, up 6 per cent from a year earlier, or 4 per cent on a comparable basis.
Net profit was €138m, down 31 per cent from the first quarter of 2010, including a loss of €87m at the television division, which the company treats as a discontinued operation.
Earnings per share were €0.14, down 36 per cent year on year. The company declared a dividend expense of €711m relating to a payment of €0.75 per share on its 2010 earnings.
Overall results were below analysts’ expectations. Group earnings before interest, tax and amortisation, excluding the TV division, was €437m, missing an analysts’ consensus of €492m, according to Sjoerd Ummels of ING. He ascribed this to higher investments in sales and research and development.
Shares in Philips were 6 cents lower at €21.03 in Amsterdam trading.
Analysts praised Mr van Houten’s “quick and decisive” move to close the licensing deal on the TV division after taking the reins. The joint venture will pay Philips royalties of 2.2 per cent on sales, with a minimum of €50m annually, beginning in 2013.
Analysts had been pressing for the company to make such a move for months, particularly since the company warned last month that TV sales would show a higher than expected loss in the first quarter. Television made up 13 per cent of the company’s sales in 2010.
The company had licensed out its TV business in China and North America in previous years, but previous chief executive Gerard Kleisterlee had been determined to keep the European business in Philips’ hands.
Victor Bareno of SNS securities said TPV Technology was a logical partner, as it was one of Philips’ most important outsourcing partners. The key, he said, was to get the TV business off the company’s profit and loss sheet.
“My expectation is that they are not likely to get a lot of value out of (the joint venture),” said Martin Prozesky of Sanford Bernstein. He said the TV business would probably continue to lose market share, but called the deal “pretty reasonable”.
Philips’ growing healthcare division showed comparable sales growth of 5 per cent on year, with ebita of 10.1 per cent, up from 9.1 per cent a year earlier. The lighting division saw sales grow 5 per cent on a comparable basis, but ebita fell because of higher sales and research costs.
Sales in emerging markets grew 11 per cent on a comparable basis. In a conference call with analysts, Ron Wirahadiraksa, chief financial officer, warned of “substantial headwinds” in 2011 from the
Japan earthquake and tsunami, and said the company was “not at the run rates to achieve our financial aspirations.”
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