Reorganization has improved the situation in Philips
Rarely, when it happened that the advantages of splitting a conglomerate and concentrating a company's efforts on the most profitable areas of activity are so obvious. The Dutch blue-chip company Koninklijke Philips (AS: PHG) completed an eight-year journey where it got rid of weak or structurally complex units, ranging from domestic TV companies to the production of light bulbs and sensors for cars. Now Philips is fully focused on the production of medical equipment and the provision of medical services. And this strategy is starting to pay off.
On Monday, Philips’s stock price rose to a maximum in 18 years after it reported good reports for the second quarter and retained its forecast for the year amid a global slowdown in the manufacturing sector. The company's sales grew by 6%, which is better than forecasts for growth of 4.5%. The number of new orders increased by 8%. This is a serious achievement at a time when the indices of business activity in the manufacturing sector are declining both in the markets of developed countries and in developing countries. In particular, sales in China rose by more than 10%.
Philips Chief Executive Officer Frans van Hauten expects the company's performance to improve in the second half of this year and reiterated the company's goal of improving EBITDA (profit before interest expenses, taxes, depreciation and accrued depreciation) by 100 basis points from 2017 to 2020 years.
In the Amsterdam stock market, the share price of Phillips rose by 4.3%, becoming the leader of growth both in the local market and among the stocks of companies covered by the Euro Stoxx 50 index . The Euro Stoxx 600 Index rose 0.2% to 391.42. The British FTSE 100 increased by 0.4%, and the German Dax 30 - by 0.3%.
However, Philips also depends on the consequences of the trade war between the United States and China. In fact, less than a quarter of Phillips’s products are sold on the European market.
China’s market is fast-growing, and any slowdown in economic growth in that country could interfere with government plans to improve medical care. Moreover, Philips may fall under the next round of imposing duties on Chinese goods from the United States. Fees may affect Philips devices that are manufactured in China for the US market. Frans van Houten told Reuters that the planned duties could lead to a decrease in profits of 20 million euros ($ 23 million) after previous duties had already caused the company a loss of 45 million euros.