Philips Electronics said on Monday it expects to double underlying earnings by 2010 by reorganising to cut costs and will keep returning billions of euros to shareholders, triggering a 4% rally in its shares.
The maker of products ranging from light bulbs to high-end medical imaging equipment said in a statement it expects to more than double 2007 earnings per share before interest, taxes and amortisation, after reorganising from four into three divisions.
Shares in Philips rose 4.41%, outperforming the Amsterdam blue chip index.
Philips, which said it was on track to reach its current EBITA margin target of more than 7.5% for 2007, said it planned to cut costs by 150 million euros ($205.3 million) to 200 million by restructuring into three units focusing on healthcare, lighting and consumer lifestyle.
The rejig from Philips' previous four divisions -- medical systems, lighting, domestic appliances and personal care -- would only affect "a handful of people" but would not result in any forced redundancies, Philips Chief Executive Gerard Kleiserlee told reporters.
"You have seen us transforming from a diversified and partly volatile company into an agile and integrated company."
Philips could return billions of euros in the next three years through dividends and share buybacks, depending on the amount of money spent on acquisitions, he said.
ING analyst Marcel Achterberg said: "I am positively surprised. All (analysts') estimates are lower than what Philips sets as a target, both for margins and growth, so this is very good news."
Higher Margin
In 2007 Philips is expected to post earnings before amortisation and exceptionals of 1.68 euros per share, according to Reuters Estimates.
Philips has been shifting to more stable and higher-margin businesses with last year's sale of stakes in its semiconductor unit, now named NXP, LCD screen maker LG.Philips LCD and Taiwan's chip maker TSMC.
The reorganisation, acquisitions and improved margin would result in an EBITA margin of more than 10% by 2010, Philips said in a statement, aiming for a minimum of 6% comparable annual average sales growth for 2008 through 2010.
"The company intends to arrive at an efficient balance sheet by the end of 2009 through a combination of value-creating acquisitions as well as continued return of capital to shareholders," Philips said.
Philips would likely increase its pace of acquisitions compared to the 4.7 billion euros spent over the past two years, and was looking to buy operations for all three units, CEO Kleisterlee said, declining to indicate specific companies.
Philips could take on debt up to two times its EBITA level, Chief Financial Officer Pierre-Jean Sivignon told reporters and a net debt of 5 billion euros was possible in the future as part of an "efficient balance sheet," he said.
Analysts said Philips would have as much as 15 billion euros available to spend on acquisitions or return to investors, taking into account of Philips taking on extra debt. The company is currenly running a 1.6 billion-euro share buyback programme.