Philips' health-care and consumer lifestyle divisions consolidate under HealthTech

Netherlands-based Royal Philips announced plans to combine its health-care and consumer lifestyle divisions under a new company, HealthTech, while its lighting solutions business will gain independence under another new company.

At a meeting with investors and analysts in London, Royal Philips announced the next strategic step to capitalize on fundamental market changes by creating two market-leading companies. One company, HealthTech, will combine its health-care and consumer lifestyle divisions, while the other company will focus on the lighting solutions division. Both companies will continue to benefit from leveraging the Philips brand.

“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation,” said Frans van Houten, CEO of Royal Philips. “To become the global leader in HealthTech and shape the future of the industry, we will combine our vibrant health-care and consumer lifestyle businesses into one company. At the same time, giving independence to our lighting solutions business will better enable it to expand its global leadership position and venture into adjacent market opportunities. Both companies will be able to make the appropriate investments to boost growth and drive profitability, ultimately generating significantly more value for our customers, employees and shareholders.”

Royal Philips will capture new HealthTech opportunities by combining Philips’ existing health-care and consumer lifestyle businesses. Building on this strong foundation, Philips will be able to capitalize on the convergence of professional health-care and consumer end-markets across the health continuum, from healthy living and prevention, to diagnosis, treatment, recovery and home care. This is illustrated by the rising engagement of consumers to proactively monitor and manage their health and by increasing pressures on the health-care system to create new models of care along the health continuum to deliver better and affordable care. The HealthTech businesses already have leading positions in, for example, oral health care, health-care informatics, ultrasound diagnostics, cardiac care, and home health care, and serve a total addressable market estimated to exceed 100 billion euros (currently $127.8 billion U.S.).

“Philips is uniquely positioned to help reshape and optimize population health management by leveraging big data and delivering care across the health continuum, from healthy living and prevention to diagnosis, minimally-invasive treatment, recovery, and home care,” continued Frans van Houten. “The combination of our health-care and consumer lifestyle portfolios and the integration of the data from the connected products on Philips’ cloud-based digital health platform illustrate our opportunity to capture growth in an increasingly connected world, where societies are looking for more effective and lower cost health solutions.”

In relation to the company’s strategic repositioning, Philips will start the process to transition its lighting solutions business into a separate legal structure and consider various options for alternative ownership structures with direct access to capital markets. More information on this will follow in the course of 2015.

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Each company will have a dedicated, focused, and lean management structure, as a result of the planned integration of the relevant sector and group layers. The new operating structure enables additional cost savings across the enabling functions, resulting in additional savings of 100 million euros ($127.8 million) in 2015 and an additional 200 million euros ($255.64 million) in 2016. Philips expects to incur approximately 50 million euros ($63.9 million) in additional annual restructuring costs between 2014 and 2016.

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