Philips is cutting 6,000 jobs to improve profitability

AMSTERDAM (Reuters) – Dutch health tech company Philips said on Monday it would cut 6,000 jobs to restore profitability after a recall of ventilators saw 70% of its market value drop.

Half of the job cuts will occur this year, the company said, adding that the other half will be realized by 2025.

The new reorganization comes on top of a plan announced last October to cut its workforce by 5% or 4,000 jobs as it grapples with the effects of the recall of millions of ventilators used to treat sleep apnea over concerns that foam in its machines used can become toxic.

The reduced workforce should result in a low teen profit margin as measured by adjusted earnings before interest, taxes and amortization (EBITA) by 2025, and a mid to high teen margin after that year, with mid-sized single rooms. comparable store sales growth rate everywhere.

“Philips is not benefiting from the full potential of strong market positions as it faces a number of significant operational challenges,” said new CEO Roy Jakobs.

The simplified organization should also improve patient safety and quality and supply chain reliability, he added.

The company will continue to invest 9% of sales in research and development, but will focus on “fewer projects with better resources and more impact,” he said.

Amsterdam-based Philips also reported fourth-quarter adjusted EBITA of 651 million euros ($707.18 million), broadly stable from 647 million euros a year earlier.

In a poll compiled by the company, analysts had on average predicted that core profit would fall to 428 million euros.

Comparable store sales rose 3% in the final months of 2022 as ongoing supply chain issues eased.

A shortage of components has plagued Philips throughout the year, causing sales to fall by 3% for the whole of 2022.

Despite the improvement in the last quarter, Philips said the supply chain remained challenging and would only improve gradually.

This was expected to lead to low-single-digit comparable store sales growth with a high-single-digit margin in 2023, the company said.

The outlook excludes the impact of ongoing discussions with the US Department of Justice regarding a settlement following the recall, as well as ongoing litigation and investigations.

($1 = 0.9206 euros)

(Reporting by Bart Meijer; editing by Tom Hogue, Sherry Jacob-Phillips and Christian Schmollinger)

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