Philips Moves Domestic Appliances to Shanghai in Push for China

Royal Philips Electronics NV, Europe’s biggest maker of consumer electronics, will move the headquarters of its domestic appliances business to Shanghai early next year to spur revenue growth in China and the region.

“One of the first decisions I took was taking domestic appliances’ leadership to Shanghai,” said Pieter Nota, who two months ago took over as head of the consumer lifestyle unit that makes shavers, televisions and coffeemakers. “As we see the center of gravity for growth in domestic appliances will be in China and India, it makes sense to have the leadership in China and have a leader from Asia.”

Philips in September set a target for earnings per share to increase at twice the rate of sales until 2015 as the company focuses on more profitable lighting and medical products and faster growing markets including India and Brazil. The Amsterdam-based company’s consumer lifestyle unit aims to expand in skincare, domestic appliances and health-related products, segments expected to grow faster than the economy.

“Spending power is set to explode, especially in China,” Nota said at an investor event in Amsterdam today. Nota, who took over from Andrea Ragnetti, previously held marketing jobs at Beiersdorf AG and Unilever Plc. in countries including the U.K., Poland and Germany.

Philips shares rose 2.9 percent to 21.40 euros at 1:49 p.m. in Amsterdam, extending the gain this year to 3.5 percent. The stock has still declined 3 percent since Nov. 26 after Chief Financial Officer Pierre-Jean Sivignon unexpectedly announced his resignation.

Middle Class

The urban middle class in emerging markets is growing by 12 percent annually, and is set to comprise more than 200 million households by 2015 while personal debt of consumers in those regions is low compared with developed markets, Philips said.

The company, founded in the Netherlands in 1891 as a maker of carbon-filament lamps, will step up the consumer lifestyle unit’s investments in local marketing, design and innovation capabilities in emerging markets, it said today. Philips aims to get at least 40 percent of group sales from markets including China, India and Brazil by 2015.

The domestic appliances business accounted for 17 percent of consumer lifestyle sales in the 12 months through September.

Philips said in October it was “cautious” on revenue development in the last three months of the year, citing an unpredictable economy and “patchy” consumer sentiment. Revenue at the consumer lifestyle division was hurt by “weak demand” in some markets in the third quarter.

Full-Year Results

Third-quarter sales excluding acquisitions, disposals and currency shifts fell 5 percent to 2.09 billion euros ($2.74 billion). The TV unit had a loss before interest, taxes and amortization of 31 million euros.

Philips today said it expects full-year group earnings before interest, taxes and amortization to “significantly exceed” 10 percent of sales. The outlook includes a loss at the TV division, which was earlier forecast to break even.

“Confirmation of the full-year targets despite a loss in the TV business is somewhat positive,” said Daniel Cunliffe, a London-based analyst at Royal Bank of Scotland Group Plc. The maintained outlook “does not change our view here: we still see limited upside potential as headwinds build in Healthcare and Consumer Lifestyle.”

The company today said predicted its TV business will post a full-year loss because of price declines and a delay in a Chinese licensing agreement.

Television Business

The division’s loss before interest, taxes and amortization will total 2 percent to 3 percent of sales, with revenue amounting to about 3 billion euros, Philips said in a statement today. It previously forecast that the unit would break even.

“High stock levels in retail and strong price erosion” for television sets, along with an unforeseen postponement in a brand-licensing agreement with TPV Technology in China will cause the loss at the television business, the company said.

Philips has limited losses from television activities by contracting out production to other companies, including Osaka, Japan-based Funai Electric Co., covering the North American market, and Videocon Industries Ltd. in India. Philips said it expects to complete the planned agreement with TPV by the end of this year.

TV is forecast to be “above break-even” in 2011, helped by the licensing agreements in India and China and cost cuts, Nota said today.

TV accounted for 37 percent of the consumer lifestyle division’s sales in the 12 months through September, a decline from 51 percent in 2000. TV operations generated 13 percent of group sales compared with 25 percent in 2005.

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