Philips HealthTech/Lighting Split Will Proceed Despite Q3 Losses
By Jof Enriquez,
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Royal Philips’ earnings took a hit in the latest reporting period due to weak demand in China and Russia and one-off charges related to writedowns and a patent litigation loss.
The company reported a net loss of €103 million ($131 million) in the third quarter compared to a net profit of €281 million from a year earlier, Reuters reported. Earnings were weighed down by sluggish sales in emerging markets, as well as one-off charges that included a €366 million fine for patent infringement. Philips also absorbed €49 million in writedowns related to an earlier suspension of production in its Cleveland, Ohio, facility.
Additionally, unfavorable currency effects lowered revenue by 1.7 percent and operating earnings by 0.9 percentage points of sales, according to Bloomberg.
“As we manage through a challenging 2014 and given a number of incidentals, we are not satisfied with our overall performance in the third quarter,” Frans van Houten, Philips CEO, said in a statement. “We are facing sustained softness in a number of markets such as China and Russia. We were also confronted by an adverse jury verdict with a surprisingly high proposed award in the Masimo litigation, which we will appeal. On a positive note, production at our Cleveland facility is ramping up.”
Earnings before interest tax and amortization (EBITA) amounted to a loss of €7 million, “primarily impacted by charges related to IP litigation and the voluntary production suspension at the Cleveland facility,” the company said in the statement. Philips estimates adjusted EBITA in the second half of 2014 to be slightly below the same period last year, according to Bloomberg.
Despite the revenue loss, Philips said it is determined to go ahead with its plan to split the company into two standalone companies. The restructuring would spin-off its Lighting business, then fuse its healthcare and lifestyle businesses into a new standalone company called HealthTech. The move aims to ride rising consumer demand for high-margin health products and services. The company said it has already started the process of separation, which will take approximately 12 to 18 months to complete.
“We are very excited by the vast opportunities in the HealthTech and Lighting solutions markets that we will capitalize on with the creation of two dedicated market-leading companies,” van Houten said in the statement.