Philips exits shrinking home entertainment business

AMSTERDAM (Reuters) - Philips Electronics PHG.AS agreed to sell its audio and video business to Japan's Funai Electric Co 6839.OS for 150 million euros, quitting a traditional sector to focus on its more profitable home appliances and healthcare operations.

A woman serves french fries prepared in an 'AirFryer', which uses hot air instead of cooking oil, at the Philips stand at the Internationale Funkausstellung (IFA) consumer electronics fair at "Messe Berlin" exhibition centre in Berlin, September 3, 2010. REUTERS/Christian Charisius

The Dutch group had already hived off its troubled television business by setting up a joint venture with Hong Kong-based TPV 0903.HK last year, after struggling for years to compete with lower-cost Asian makers of consumer electronics.

With consumers going online for music, films and games rather than buying CDs and DVDs, Philips decided to get out of home entertainment even though it was profitable last year, Chief Executive Frans van Houten said, adding that the business was shrinking and “margin dilutive”.

“This completes the repositioning away from consumer electronics,” van Houten told Reuters Insider.

In future, the consumer division will focus on appliances such as shavers, toasters, juicers and coffee makers.

Philips shares rose 1.4 percent to 22.2 euros, trading at the highest level since April 2011. Analysts welcomed the deal as “an important divestment” that could fan hopes of further disposals in the consumer portfolio.

Philips, which will also receive licence fees from Funai, reported a fourth-quarter net loss of 355 million euros - widening from a year-ago loss of 160 million euros - as it cited previously flagged provisions and charges.

The group had already warned last month that it would take a provision of 509 million euros to cover an European Union fine for cartel practices in its television business, and that restructuring charges would be higher than previously estimated.

Philips reported three consecutive quarters of better-than-expected net profit in 2012, after struggling with weak economic growth, fragile consumer spending and government budget cuts in several markets.

The fourth-quarter results showed that underlying profit improved significantly following job cuts, disposals and a focus on core businesses.

Adjusted quarterly earnings before interest, tax and amortisation (EBITA) was 875 million euros - up almost 50 percent from a year ago and the best quarter in the past two years. Sales rose 3 percent to 7.161 billion euros.

Analysts in a Reuters poll had forecast adjusted EBITA of 847 million euros, a net loss of 308 million euros and sales of 7.161 billion euros.

Sales and profits rose at the healthcare division, which sells home oxygen kits, hospital scanners and ultrasound systems, and at the consumer business.

Excluding restructuring and acquisition charges, EBITA for the lighting business - which has been hit by a slowdown in the construction market - also rose from a year ago.

Philips said it was on track to achieve its end-2013 targets of sales growth of between 4 and 6 percent, a margin on EBITA of 10 to 12 percent and a return on invested capital of 12 to 14 percent.

Reporting by Sara Webb; Editing by Erica Billingham