Philips to cut 13% of jobs in safety and profitability drive

[January 30, 2023]  By Bart H. Meijer

AMSTERDAM (Reuters) -Dutch health technology company Philips will scrap another 6,000 jobs worldwide as it tries to restore its profitability and improve the safety of its products following a recall of respiratory devices that knocked off 70% of its market value.

Half of the job cuts will be made this year, the company said on Monday, adding that the other half will be realised by 2025.

The new reorganisation brings the total amount of job cuts announced by new Chief Executive Roy Jakobs in recent months to 10,000, or around 13% of Philips' current workforce.

It also adds to the string of technology-based firms to make layoffs, after companies including Alphabet's Google, Microsoft, Amazon and German software maker SAP announced thousands of layoffs to cut costs as they brace for tougher economic conditions.

Philips shares traded up 5.5% at 0855 GMT, helped by fourth-quarter earnings which were much better than expected.

"There is a significant beat on Q4 and the operational improvement measures are very large," ING analyst Marc Hesselink said in a note.

Jakobs took over the reins of the company last October, as Philips continued to grapple with the fallout from the recall of millions of ventilators used to treat sleep apnoea over worries that foam used in the machines could become toxic.

"What we present today I think is a very strong plan to secure the future of Philips. The challenges we have are serious and we are adressing them head on," Jakobs told reporters.

Jakobs said patient safety would be put "squarely at the center" of the new organization.

To improve profitability while investing in safety, innovations will be targeted at "fewer, better resourced, and more impactful projects", Jakobs said.

Together this should lead to a low-teens profit margin, as measured by adjusted earnings before interest, taxes and amortization (EBITA), by 2025, and a mid-to-high-teens margin beyond that year, with mid-single-digit comparable sales growth throughout.

Philips Healthcare headquarters is seen in Best, Netherlands August 30, 2018. Picture taken August 30, 2018. REUTERS/Piroschka van de Wouw/File Photo

RESULTS IMPROVING, WITH CAUTIOUS OUTLOOK

Amsterdam-based Philips remained cautious in its outlook for the year despite fourth-quarter results that were significantly better than expected.

Adjusted EBITA in the last three months of 2022 came in at 651 million euros ($707.18 million), nearly stable from 647 million euros a year before, while analysts in a company-compiled poll on average had predicted it would drop to 428 million euros.

Comparable sales edged up 3%, instead of the 5% plunge analysts had predicted, as ongoing supply chain problems eased.

But despite the improvement in the shortage of components that has troubled Philips for over a year, Philips said the supply chain remained challenging and would only further improve gradually.

This was expected to lead to low-single-digit comparable sales growth on a high-single-digit margin in 2023, it said.

The outlook excludes the impact of ongoing discussions with the U.S. Department of Justice on a settlement following the recall, and of ongoing litigation and investigations.

($1 = 0.9206 euros)

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

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