Essay About Avm Disposal And Product Innovation

Philips – Equity Case Study
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Philips Case StudyPositive Impacts & potential change in company profileThanks to the creation of 2 separated companies, they could be more focused and have a lean management structure. Accelerate (restructuring program) is a success : 60% completion at the moment structural restructuring charges are lower than forecasted which offsets the net income cut due to AVM disposal and lower licensing contribution (EPS is still in line)Philips has a high ability to growth inorganically and is prepared for it (has completed 75% of its share buyback program) ; however bad rating by S&P and Moody + has a bad track record and buying acquisitions x22 its EBITPhilips may have a considerable scale advantage in Lightning (with sales twice as large as the N2) but it’s not visible in the EBIT% since the restructuring program is lowering the figures. In addition, the industry is in the midst of a technological shift ; Philips seems to be leading the path with a +- 25% growth in Q3 2012 (higher than its competitors) in the led sector) – Lightning being a highly-guarded strategic section of PhilipsIn the rest of the portfolio ; Philips Consumer Well Being holds a niche leadership positions in some specific products (hard to assess the historical performance since it was entangled with the rest of Philips consumer electronics portfolio) but growth of 5-6% over the last 5 years = exceeding expectations. This type of growth is due to product innovation and geographical footprint (emerging countries new markets)AVM disposal is a good news, because they had a negative WC structureIncreasing expenditures in R&D, from 1.3% of sales in 2010 to 2.4% in 2012, it is developing many new products, especially in the value segment. Because the growth is heavily dependent on product innovation in mature segments.Master and acquisition refocus; it has completed 75% of its share buy-back program but management wants to be focused on savings program. Mergers and Acquisitions is an area where a track records needs to be built. Potential sources of improving profitability that could generate earnings/cash flow growth. Cost savings of 100M in 2015 and 200M in 2016, thanks to the establishment of the 2 companies.The objectives communicated to the market (CAGR >4%, reported EBITA >10%, Group ROIC >12%) urges the 500 top managers to achieve these goals ; with bonus payouts (“retention of talent”)Many opportunities to spend cash and make investmentsThe program has beaten expectations 6 quarters in a row (organic growth and EBITA), now it starts to slow down. Philips has a boom-to-bust program which means innovation -> growth -> pause -> innovation -> growth ->…Valuation of  Philips which provide supportExane Raised their target price from 22.5 € to 24.5 €, the current price is 24€, thanks to the change in Portfolio. The Portfolio is now more concentrated. Also thanks to disposal of AVM, it leads to a reduction of structural recurring restructuring charges.