Philips likely to list lighting business on stock market

By Toby Sterling

AMSTERDAM (Reuters) - Philips (PHG.AS) said it was likely to list its lighting division on the stock market, creating a standalone company that would be the world's largest maker of lights.

The announcement on Monday was the first time the Dutch company has specified how its intends to separate lighting - its original business when it started out in 1891 - to increase its focus on healthcare technology, a higher-margin business that accounts for the lion's share of its sales and profits.

Investors have been awaiting guidance since the plans to spin-off the lighting division - valued at around 5 billion euros by analysts - were unveiled almost two years.

Philips shares were down 5.6 percent at 1036 GMT, despite the group's first-quarter profit beating analysts' estimates.

Some investors might have preferred a private sale of the lighting business to a trade buyer in China, where much of the world's LEDs are manufactured, according to analysts, or to a private equity firm that could help it manage costs in its traditional bulb business.

Chief Executive Frans van Houten acknowledged that the company could still switch to a trade sale if uncertainty around a possible British exit from the European Union upset markets, but that seemed unlikely.

"With equity markets' sentiment improving compared to the first couple of months of the year, an IPO (initial public offering) increasingly appears a more likely outcome," said the company, adding a final decision would be made "shortly".

Philips Lighting is the global market leader by sales, with a growing LED business, which now accounts for half of revenue, countering shrinking income from traditional lighting.

However it faces stiff competition from Germany's Osram Licht (OSRn.DE) - itself spun off from Siemens - and U.S. firm General Electric's (GE.N) appliances and lighting division. All are contending with declining sales of traditional lighting as well as falling LED prices in the face of competition from lower-cost Chinese rivals.

PATENTS

The Philips group's first-quarter earnings before interest, taxes and amortisation (EBITA) rose 26 percent to 290 million euros ($326 million), beating an average estimate of 257 million euros in a Reuters poll of analysts. Comparable sales rose 5 percent to 5.51 billion euros.

Philips Lighting accounted for about a third of both sales and operating earnings in 2015. In the most recent quarter it had EBITA of 102 million euros on sales that fell 2 percent to 1.69 billion euros.

Exact comparisons are impossible due to differing business lines, but Osram's first-quarter EBITA was 152 million euros, with revenue of 1.48 billion euros. GE's appliances and lighting division had profit of $115 million and sales of $2 billion.

Smaller lighting competitors include Durham, North Carolina LED maker Cree (CREE.O), Japan's Nichia (5393.T) and Bridgelux, purchased last year by China Electronics Corp [CELEC.UL], one of the many producers in the fragmented but big Chinese LED market.

Van Houten said the Philips group's outlook for 2016 remained unchanged, as most of its earnings improvements would come in the second half of the year due to "macro-economic headwinds" and costs it is taking in the first half related to the spin-off.

The company first announced plans to separate lighting in 2014. It has said the lengthy process in disentangling the business was in part due to difficulties in separating out lighting's extensive patent portfolio.

Around two-thirds of Philip's revenue comes from its healthcare operations, which for the first time have been split into multiple divisions with a view to understanding the company after the lighting split.

The largest division, personal health, includes the consumer products many still associate with the company such as toothbrushes and electric shavers. Medical scanners and imaging equipment are grouped into a second division, with the company's connected health services - such as patient monitoring systems and data-crunching for hospitals - in a third.

(Reporting by Toby Sterling; Editing by Pravin Char)