Philips worldwide ‘Vision 2010’ company restructure to raise profits

By Martin Vedris

AMSTERDAM, THE NETHERLANDS: Philips has announced its worldwide plan called ‘Vision 2010’ to grow the business, simplify its organisational structure into the three areas of healthcare, lighting and consumer lifestyle and more than double its profit target by 2010.

Philips’ stated aim of Vision 2010 is to, “further position Philips as a market-driven, people-centric company with a strategy and a structure that fully reflects the needs of its customer base, while also increasing shareholder value.”

According to a company statement, Philips also aims to achieve higher levels of operating profitability. By 2010, Philips expects the EBITA (earnings before interest, taxes and amortisation) margin of its current businesses to exceed 10 per cent through improved margin management, increased contribution from recent acquisitions, improvement of its product mix and the effects of the organisational simplification, estimated at EUR 150 million to EUR 200 million of cost savings.

Philips also aims to deliver a minimum of six per cent comparable annual average sales growth for the period 2008 to 2010.

The financial markets received the news favourably with shares in Philips rising on the London stock exchange following the news announced on Sunday 9 September.

Particularly pleasing to investors was the company’s stated goal that, “the company intends to arrive at an efficient balance sheet by the end of 2009 through a combination of value-creating acquisitions as well as continued return of capital to shareholders. With the above revenue and EBITA margin targets, and with our continued drive towards a more efficient capital structure, Philips expects EBITA per common share to more than double by 2010 from the level expected in 2007.”

“Following the successful implementation of our 2004 -2007 strategic plan, we are well on track to deliver on our objective to achieve above 7.5 per cent EBITA in 2007. The time is right therefore to give our stakeholders a clear blueprint of what we want Philips to be in 2010,” said Philips’ president and CEO, Gerard Kleisterlee.

“While our healthcare strategy is already people-centric, focusing on improving patient outcomes in specific care cycles such as cardiology, oncology and critical care from the hospital to the home, we have now developed a comprehensive consumer lifestyle strategy that takes into account the evolving needs of the modern, lifestyle oriented consumer. And as structure follows strategy, successful implementation requires a further realignment of the organization.”

Philips plans to simplify its business structure by creating three core sectors with strong single-headed management: Philips Healthcare, Philips Lighting, and Philips Consumer Lifestyle. To this end, Philips intends to integrate its current Consumer Electronics (CE) and Domestic Appliances and Personal Care (DAP) businesses into one Consumer Lifestyle sector as of January 1st, 2008. Philips will also combine Consumer Healthcare Solutions, renamed as Home Healthcare Solutions, with Philips Medical Systems, under the new name of Philips Healthcare.

“By aligning our organization within three core sectors under strong and experienced management, I am confident that the business structure now optimally reflects our strategy, and that we are close to becoming the Philips we envisaged when we embarked on our path to transform the company in 2001”, Kleisterlee continued.

“In particular, the integration of our current CE and DAP businesses into one Consumer Lifestyle sector will create a consumer solutions powerhouse closely grouped around the end-consumer, with deep consumer insight and a proven ability to develop, produce and market truly innovative products at higher levels of profitability than before. It will combine the best of both businesses, and will position Philips to reap the benefits from the growth expected in the consumer retail markets in the future.”

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