Despite delivering strong sales in its LED business, Philips profits in 1Q15 declined 28% due to slowdown in its health business, reported Financial Times and Marketwatch.

The company reported strong sales growth and profitability in its LED business, while conventional lighting business had declined at a faster rate, said the company Chief Executive Officer (CEO) Frans van Houten. In addition, the company’s Professional Lighting business in North America underperformed. The lighting business also delivered unsatisfactory results in China, “which we are actively addressing,” said van Houten.

“We continue to proactively rationalize our conventional lighting operations and are confident in our conventional lighting business’ ability to sustain its attractive cash and profitability profile,” said van Houten.  

As for the Go Scale Capital’s acquisition of Lumileds and automotive lighting business, van Houten projected the deal would be closed during third quarter of 2015, due to regulatory approvals.

According to a Bloomberg report, Philips will be voting on the splitting of its lighting business unit in May. “The transition of the Lighting business into a separate legal structure will take at least until the end of 2015, in order to be ready for the separation, which is currently intended to be effectuated through an IPO in the first half of 2016,”  stated Philips. Philips estimated the spin-off would cost a range of EUR 300-400 million (US $329.21 million to 438.82 million) in 2015.

Philips decided to part with its century old lighting business last year to direct resources to the development of medical equipment and health businesses.

Lighting

Lighting (excluding the combined businesses of Lumileds and Automotive) comparable sales declined 3% year-on-year. On a nominal basis, sales increased by 9%, mainly due to positive currency effects. LED-lighting sales grew 25%, offset by a decline of 16% in overall conventional lighting sales. LED sales now represent 39% of total Lighting sales, compared to 30% in Q1 2014. EBITA margin, excluding restructuring and acquisition-related charges and other items, amounted to 8.4%, compared to 8.0% in Q1 2014. The increase was mainly driven by improved operational performance of LED and Professional Lighting Solutions, partly offset by the decline in conventional.

“We are expanding our portfolio of connected lighting products for the home with innovations such as Philips Hue Phoenix, the first luminaire that provides dimmable white light. We also made further inroads with our CityTouch lighting systems, with Los Angeles, for example, adopting an advanced Philips management system that uses mobile and cloud-based technologies to control its street lighting. Philips’ CityTouch connected lighting management system is now used in more than 250 cities globally,” said van Houten.

Highlights from Philips 1Q15 Financial Report:

• Comparable sales increase was driven by Western Europe and growth geographies

• EBITA amounted to EUR 230 million (US $252.29 million), or 4.3% of sales, impacted by increased investments, compared to EUR 253 million, or 5.4% of sales, in Q1 2014

• EBITA, excluding restructuring and acquisition-related charges and other items, amounted to EUR 327 million, or 6.1% of sales, compared to EUR 304 million, or 6.5% of sales, in Q1 2014

• Net income amounted to EUR 100 million, compared to EUR 137 million in Q1 2014

• Free cash outflow amounted to EUR 443 million, compared to an outflow of EUR 431 million in Q1 2014