Royal Philips to combine consumer health and medical systems

September 10, 2007

Royal Philips is reorganizing and plans to combine its consumer healthcare and medical systems units. And this group potentially could grow bigger.

Royal Philips is reorganizing and plans to combine its consumer healthcare and medical systems units. And this group potentially could grow bigger.

Having grown through healthcare our acquisitions in the past, Philips is planning more, according to president and CEO Gerard Kleisterlee. No timetable, however, was given for any specific ventures.

"We want to focus on growth and in the context of growth you try to buy good companies," he said. "If you look at acquisitions over the past 24 months, these were good companies that did not need restructuring."

Continued turmoil in the stock market could push Philips toward buying more companies, he said. Recent upsets have been fueled by credit problems, and Philips is a cash-rich company.

"I do not hide the fact that we have said several times over the last six months and year that the best thing that could happen to Philips would be a stock market crash, because cash remains cash," he said.

Philips reorganization is part of "Vision 2010," the company's strategic plan, which was unveiled Sept. 10 by its chief exec via telephone and the Web. Initiatives are aimed at expanding Philips' customer base and making operations more efficient.

"Vision 2010" is an elaboration of an earlier corporate doctrine, implemented in 2001, under which the company focuses on what it does best, dropping or selling businesses that are neither first nor second in the market. Earlier efforts have already boosted growth, according to Kleisterlee. He predicted that Philips will meet its target of 7.5% growth in EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2007 over the previous year.

"Vision 2010" is designed to drive growth further, doubling EBITDA per share by 2010, he said. This will be achieved through gains in the healthcare, lighting, and consumer lifestyle divisions, as well as efforts that streamline corporate operations, he said. Specifically, the company will improve the margins of existing businesses, increase contributions from acquired companies, and make the product mix better.

Kleisterlee noted that the company's healthcare strategy is already well developed, as the company has begun focusing on the improvement of patient outcomes in specific care cycles. These include cardiology, oncology, and critical care, from the hospital to the home.

"We focus on care cycles and we bring the right innovations to the market that our consumers want to see from Philips. That can entail a move beyond diagnostic imaging," he said. "You have seen that in the buildup of home healthcare solutions."

As structure follows strategy, Kleisterlee said, successful implementation requires a 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. Under this plan, Philips will combine Consumer Healthcare Solutions with Philips Medical Systems, under the new name Philips Healthcare.

"By moving consumer healthcare to Philips Healthcare, we integrate all aspects of the care cycle within one organization," Kleisterlee said.

This combination will not happen overnight. But if all goes as planned, on Jan. 1, 2008, the reorganization will be fully in effect. At that time, Steve Rusckowski, currently CEO of Philips Medical Systems will take over the combined healthcare group, assuming the title of CEO, Philips Healthcare.