Philips plans to triple Gulf business with mega projects
Until four years ago the Dutch giant had made a success in the region by relying heavily on sales of its consumer products, typically electronic and domestic appliances. But its lighting arm, which contributes 25 per cent of sales to Philips' $46 billion (Dh169bn) global operation, has regrouped and is now aggressively targeting large-scale building contracts in the Middle East with equally ambitious growth targets.
Philips is aiming to triple its business in the region within three years, and as part of this growth, Philip Lighting has so far overseen $4bn in acquisitions in the past 24 months alone – 40 per cent of the group's overall buyouts.
Rudy Provoost, CEO of Philips Lighting and Executive Vice-President at Philips, told Emirates Business he wants to command a 30 per cent market share in the UAE's project business by 2010, up from 20 per cent currently. He said offering eco-friendly lighting to contractors is the key to capturing projects, as developers look for environmental solutions for a more sustainable future.
In the UAE, prospects are high for Philips Lighting's green products as the country attempts to minimise the financial loss from wasted light energy.
Provoost estimates that of all lighting in the UAE up to half is inefficient. Upgrading to the latest technology would save the equivalent of up to four mid-size energy plants, or two million tonnes of carbon dioxide, and overall would relieve pressure on precious oil output.
How does the Middle East fit into Philips Lighting's global strategy?
Philips is a €30bn [Dh169bn] company organised around three sectors – lifestyle, healthcare and lighting. Philips Lighting represents 25 per cent of sales of the overall business, roughly €7.5bn, and contributes one third to total profit. We have half our staff, or 60,000 people, working for this part of the business, and we have 100 factories and are present in 60 countries all over the world. We are playing chess on all the lighting tables at the same time – 40 per cent of the business is lamps, 40 per cent is lighting solutions, and 20 per cent is lighting electronics: solar, digital and LED based.
In the past few years we have been extremely active to develop our presence in the emerging countries such as Russia, China, Brazil, India and the Middle East. More than one third of my business today is done in these high-growth economies.
The Middle East is a strategic market. The Philips board has had a lot of discussions about what it takes to make this region a powerful force in that broader global context. If you look around, there are so many projects and developments that it fits perfectly with our growth ambitions. You have to be where the action is.
We've been here with lighting since 2004, growing 40 to 50 per cent year on year, and will continue to do that particularly with the growth curves we're seeing here. The broader plan is to triple the business in the Middle East within the next three years, and lighting is part of this.
How has Philips' presence in the Middle East shaped up in recent years?
Given what the Middle East economy represents in the world, we are still underrepresented. That's the reason why we've got into the game. We entered the region in 2004-2005, which is pretty late to get into the game in a fully fledged way. We need to catch up in terms of the Middle East in general. So the growth targets we have set ourselves are significantly higher than the average targets we apply in established markets.
Philips has been in the Middle East in the 1990s and before more on an export basis. So very much through the traditional channels of wholesaler and distributor and retail. But today we want to be in the project business. We want to be engaged with hotels, entertainment, hospitals and retail shops. But suddenly to get into that project business you need a different approach to the market, you need people on the ground and the capability and capacity to deal with it. We've not been very present, it's only the last two or three years we've got organised and now have a very impressive pipeline of projects.
Currently, we occupy 20 per cent of the UAE project lighting business and want this to grow to 27 per cent in two years. In Europe and the United States our presence is nearer 30 to 40 per cent. Our overall market share in the UAE's light sector is about 15 per cent. The rest of the market is extremely fragmented with many small players.
In terms of our staff levels, we had six people here in 2004, 26 last year, 53 this year and next year 110 professionals.
Globally, Philips Lighting has done $4bn in acquisitions in the past 24 months, which is 40 per cent of all of Philips' overall buyouts.
What have been your biggest lighting projects in the UAE so far?
We've done the Ice Café in Times Square, Business Bay crossing's overhead lighting and as well as the blue signature along the side that reflects on the creek at night, and the Emarat petrol stations. We've also done Manchester United's Old Trafford stadium in the United Kingdom, and the National Theatre and Buckingham Palace in London.
In the National Theatre, by moving to LED-based lighting both inside and out, we were able to save on air conditioning costs and re-invest this money in culture. We saved hundreds of thousands of pounds on an annual basis. We could do that in the UAE as well. Most of the stadiums at the Beijing Olympics will be lit by Philips. And worldwide we light 70 per cent of major stadiums.
How would you rank the UAE in its approach to sustainable and eco-friendly lighting?
It's only recently that I've seen that the green revolution is starting to take off. We've been active in the past five years to promote and create awareness of sustainability. We are the number one on the Dow Jones Sustainability Index, and have been for the past four years, working with policy makers, regulators and competitors to create a level playing field for a more sustainable world and promote energy efficiency. The notion of working together between companies and between policymakers is something that still needs to find momentum in the Emirates and the Middle East in general. We need to make sure that this becomes a prominent point in the agenda.
What's the extent of wasted energy from lighting the UAE?
Easily 40 to 50 per cent is wasted. To put this in context, lighting represents 19 per cent of the world's electricity bill. We have calculated that if you take 40 per cent on average, that's the equivalent of more than 500 mid-scale energy plants worldwide, or more than €100bn a year. In the UAE, that would translate to up to four mid-size energy plants you could save, or two million tonnes of carbon dioxide. Every barrel of oil you can save here you can sell.
In the UAE, because 80 per cent of every lamp is heat and 20 per cent is light, you can save one-third in air conditioning consumption. One of the problems we have here is that we're still using technology of the past. But if you take LED-based lights, which are 11 watts, they give practically the same output of a halogen lamp. By turning the extra heat into light, you become more energy-efficient and you save on the air conditioning costs. Go into any hotel and look at how many halogen lights there are. In the retail sector, if you replace a halogen bulb with a more efficient CDM light there is a 70 per cent energy saving, which also saves 140kg of carbon dioxide per year.
Where is the UAE going wrong with energy efficiency in its lighting?
The country is not going wrong, it's just the price you pay when you're growing at the speed you're growing here. It's a very natural consequence. Where the UAE could do better is to get all stakeholders round a table and have an open discussion to make things happen. On a Middle East level, you need to get the nations to talk to one another. This is one of the major issues that everyone speaks the same language but they don't share their healthcare and lighting successes.
PROFILE:Rudy Provoost, Executive Vice-President Philips, Chief Executive Philips Lighting
Rudy Provoost was made CEO for the lighting division earlier this year after more than seven years at Philips.
He joined the firm in October 2000 as the executive vice-president of consumer electronics in Europe. He was appointed CEO of global sales and services for consumer electronics, as well as senior vice-president and member of the Group Management Committee in August 2003. By 2004, he had become CEO of consumer electronics and in 2008 transferred to head Philips' Dh42.5 billion lighting division.
Provoost began his professional career in 1984 with Procter & Gamble Benelux in management systems and worked for a number of years as a project manager on various finance, operations and marketing and sales assignments. In 1987, he joined Canon Belgium as marketing planning manager, and later became sales and marketing manager for the reprographics division. In 1989, Provoost was appointed general manager marketing for all business operations.
Provoost joined Whirlpool in 1992 as managing director for Belgium and was named vice-president consumer services for Europe in 1993. He went on to become senior officer of Whirlpool Corporation and, successively, vice-president group sales in 1994, vice-president group marketing in 1996 and vice-president Whirlpool Brand Group for Europe in 1999.