For the first nine months of the current year, the financial performance has improved alot. Operating margins are up to 6 per cent from 5.2 per cent the corresponding period last year. Total revenues were up by 8.5 per cent. Most importantly, Philips reported a net profit of Rs 9.1 crore despite charging extraordinary expenditure amounting to Rs 14.13 crore for this period, against a loss of Rs 18.86 in the corresponding period last year. Operating profit for nine months of the current year totalled Rs 70 crore, against Rs 82 crore earned for the entire financial year 1997.

The stock has responded very positively to all the changes taking place within the company, appreciating by 150 per cent between February and September 1998. The upswing reversed by 22 per cent in the run-up to the extraordinary general meeting (EGM) in December, which was called to obtain shareholders' permission to sell the Salt Lake unit to Videocon International. But the stock once again resumed its upward movement, increasing by 6.5 per cent on Monday, following the resolution being carried through at the EGM on thestrength of the parent company NV Philips' majority holding.

Over the last few years the company has been hurt by low productivity, especially when faced with more aggressive competition than ever before. The company, like others in the consumer electronics industry, misunderstood the depth of the market in India. Philips India followed a couple of years of good growth in the consumer electronics business with large investments in manufacturing capacities. Between 1994 and 1996, total net fixed assets increased at a compounded annual growth rate (CAGR) of 26.5 per cent. These investments at the time of overcapacity and falling purchasing power meant a drag on returns and a need to restructure its business to reduce costs. According to media reports, in the last three years, Philips' market share in television has fallen to just 6 per cent.

In the annual report for 1997, the year the company suffered its largest loss in the last decade of the century, the management stated its intention of improving itsmanufacturing processes. To quote from that report; "Changing cost structures have forced companies to re-examine what we will produce ourselves, how we produce it and where we produce it." In other words, integrated manufacturing of the kind being practiced by Philips is giving way to focused manufacturing, where only certain high-value components are manufactured in-house, and the company operates more as an assembler and marketer, thus reducing overhead costs and inventory stock, lowering working-capital requirements. The sale of the Salt Lake consumer electronics unit is part of this restructuring programme. The company will seek to centralise its manufacturing operations at its plants in Pune, Maharashtra.

The company's operating success last year came mainly from the lighting division. In India, the lighting division has been its mainstay, and there is still very little competition. It is only in the last three years that investments in consumer electronics have overshadowed investments in thelighting business. Last year, the lighting division grew by 21 per cent in revenues and 15 per cent in terms of volumes. In contrast, revenues from television sales were lower by 11.5 per cent, and volumes were lower by 11 per cent. The company's lighting division has been the beneficiary of contracts for the entire lighting of the new oil refineries as well as from the remodelling of the existing petrol pumps.