Business News | Sep 22, 2006

Philips light unit sees strong growth and profit

Philips Electronics said on Wednesday that its lighting business was on track to post annual sales growth of 6 percent to just over 5 billion euros ($6.34 billion), boosted by Asian demand and bright LEDs.

Stronger growth may come with better profitability, Theo van Deursen, chief executive of Philips Lighting, said at a meeting with analysts.

"I do not exclude that we improve our margin, but I don`t promise that. We want to maintain a 12 percent (EBIT) margin (of sales). If we do very well, we may be able to improve it a bit. Growth is more important than margin improvement," he said.

Philips Lighting division, which generates around 16 percent of the group`s total sales, has accelerated growth from an average 2 percent a year in the eight years to 2003 to 5 percent a year between 2004 and the first half of 2006.

With the recent acquisition of light-emitting diodes (LEDs) maker Lumileds, which grows by around 24 percent a year, annual growth will get another boost, to 6 percent, Van Deursen said.

"Clearly, this trend -- along with robust demand from emerging markets -- is helping keep us well on track to meeting a long-term annual sales growth rate in Lighting of 6 percent," he said. 
Philips Chief Financial Officer Pierre-Jean Sivignon said in July that full-year sales growth for the Lighting division would probably slightly exceed the 6 percent target. Van Deursen told journalists on Wednesday that his business may do better than 6 percent comparable sales growth this year.

Van Deursen added any acquisitions that would help Philips improve its technology base and sales channels would come on top of that 6 percent. He declined to name specific targets but said he was eyeing LED and luminaires companies in North America.

With electricity prices having doubled in recent years due to higher oil prices, the company said it was now approaching governments around the world to promote its energy-saving lamps, which consume less than a sixth of the energy of incandescent light bulbs.

Lighting accounts for 19 percent of global electricity consumption, and Philips reckons the power bill can be cut by 50 billion euros a year with energy-efficient lamps. It would also reduce carbon dioxide emissions by 273 million tonnes.

"These are staggering numbers. We are now appealing to all governments in the world to start energy-saving campaigns. We think the payback is reasonably short: three, four or five years," Van Deursen said.

Philips also stands to benefit from early replacement, because 80 to 90 percent of its lighting business is the result of replacement, and energy-efficient lamps are more expensive.

"Demand for the energy-savings part of the business is growing by far the fastest, and also the margins are above average," Van Deursen said.

In an unlikely alliance, Greenpeace is also part of the campaign to promote energy-efficient compact fluorescent lamps.

"Greenpeace has started a campaign to promote 1 million energy-efficient lamps in the Netherlands, including Philips`s," Greenpeace spokeswoman Loes Visser said.

Governments in Latin America and elsewhere in Europe are subsidising such lamps to consumers and are helping municipalities by replacing street lighting early.

Moving into new territory, Philips said it would launch a water-purification system using lamps later this year in India.

"It can be attached on any tap in the house and will be introduced in collaboration with the (DAP) domestic appliances division to hopefully help Indian households to make their water much safer," Van Deursen said.

Sales of the system, which takes out bacteria and viruses, but not chemicals, will start early in 2007 in India.

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