Philips Electronics NV, Eindhoven, has declared its period of restructuring largely at an end, and its half year results show the benefits flowing in. According to Dudley Eustace, finance director, the company is now moving from the restructuring phase into the revitalisation phase. In its first major investment for several years, Philips will use over $280m in expanding its Nijmegen plant for compact chips for mobile phones and televisions (CI No 2,477) and is also looking to expand its presence in the media, chiefly in music and film. Philips’ net profit for the second quarter, excluding the extraordinary gain of the previous period of $618.7m on the sale of its stake in the Japanese joint venture Matsushita Electronic Components Ltd to Matsushita Electric Industrial Co, leaped 242.4% to $226m, on turnover that grew 6.4% to $8,000m. The company spent $112m in the first half in further restructuring and expects to spend a further $56m in the rest of the year. Philips attributes the surge in growth to the economic recovery in some European countries, combined with sustained strong growth in the Americas and Asia, and a spurt in sales of video recorders and televisions as a result of the soccer World Cup. This final factor, however, leads the company to believe that though growth will continue in the second half, it may well slow down. Another factor that will retard growth is the weak dollar and a stronger yen. The dollar fell 9% in the first half, but mostly in the last month.
Taiwan Semiconductor
Earlier the dollar traded higher, and the stronger income from dollar orientated countries offset any later losses, masking the real impact. The stronger yen is also damaging the company’s results as it is a net buyer in Japan. Any shortfall, however, could be easily remedied by the cash Philips will get when it sells part of its stake in Taiwan Semiconductor Manufacturing Co Ltd. The Taiwanese company, where Philips holds a 40% share, is planning a listing in September, and Philips must sell about 5.2% of its stake, about 2% of the total equity. The company has been caught up in the excitement of a booming in the semiconductor industry, and a price of an equivalent of $3.37 per share has been touted for the minimum 46.2m shares to be sold. Philips’ star performers were consumer electronics, which showed a $118m operating profit against a $63m last time on turnover up 5% at $5,471m and semiconductors with profits up 72% at $420m on turnover up 28% at $2,425m. Even Philips’ majority-owned German consumer electronic unit, Grundig AG, is leaking less, with losses under $56m for the first six months, well below previous levels. Max’s old company has been a major drain on Philips, as under a 1984 rescue, Philips not only has to fund all Grundig losses but must also pay a fixed dividend to the minority family shareholders. Philips is provisioning $25m a year to buy out the minority by the year 2000. Grundig’s high costs and overstaffing created huge deficits when Germany slid into recession in the last two years. Philips also wants to keep extending the maturity of its debt and plans to go to the private placing market in the third and last quarters as it fills out the maturity profile of its debt. Philips prepaid the balance of a $2,000m loan and recently launched a $2,500m facility, the largest offered in the Netherlands. The reduction of long-term debt has strengthened the net debt-to-equity ratio to 36:64 from 40:60 at the end of 1993. This enables it to make acquisitions without having to issue shares. The effect of the news on the share price was swift as Philips shares gained $1.52 to $32.96 early on, as the results far exceeded analysts’ expectations of between $119m and $162m.
