Philips Targets Extra Savings of 1 Billion Euros Through 2016

Royal Philips Electronics (PHIA) NV said it sees opportunities for additional cost savings of 1 billion euros ($1.29 billion) between 2014 and 2016 by simplifying the process of making products.

The “end-to-end” approach to product-creation restructures the purchasing value chain and reduces costs of procurement and research and development by working with one integrated team, Chief Financial Officer Ron Wirahadiraksa said today in a presentation in Boston for analysts and investors.

“This is a promising and exciting area” and the measures could improve margins, Chief Executive Officer Frans van Houten said.

The additional savings target follows a companywide overhaul initiated in October 2011 that is designed to save 1.1 billion euros by 2014 and includes 6,700 job cuts. This previous program involves reducing management layers and improving IT systems to speed decision-making.

Philips shares rose 3.3 percent to 23.77 euros at 4:14 p.m. in Amsterdam trading.

The restructuring efforts are bearing fruit for Amsterdam- based Philips, which competes with Siemens AG (SIE) and General Electric (GE) Co. in health-care equipment and lighting. In January, Philips reported a rise in fourth-quarter earnings before interest, taxes, amortization and one-time items of 50 percent to 875 million euros, beating analysts’ average estimate of 866 million euros, according to data compiled by Bloomberg.

Sales gained 6.7 percent to 7.16 billion euros. Health-care revenue rose 7.1 percent, while lighting sales advanced 9.2 percent.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net