S&P cuts Koninklijke Philips

Standard & Poor's said it lowered its long-term corporate credit and debt issue credit ratings on Koninklijke Philips NV to BBB+ from A- and affirmed the A-2 short-term rating.

The outlook is stable.

S&P said the downgrade reflects Philips' weak operational and financial performance in 2014 due to a moderate decline in its underlying performance and significant incidental charges that further depressed reported earnings. This has led the agency to reassess Philips' financial risk profile assessment as "intermediate" from "modest."

Philips' funds from operations (FFO) to debt in 2014 was only 27% (about 35% when adding back the earnings contribution from the Lumileds and automotive business, which had been reported under discontinued operations). This is well below the level S&P considers commensurate with the previous A- rating (above 50%), and it doesn’t expect Philips will be able to improve this metric in the near-team. This is because ongoing remediation in its Healthcare Equipment business related to the suspension of its Cleveland facility, as well as continued restructuring of its operations including the costs related to the separation of its lighting business, will likely weigh on 2015 earnings.

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