Philips will cut 13% of jobs in the safety and profitability drive

  • Philips will cut another 6,000 jobs
  • Increase the number of layoffs since October to 13% of the current workforce
  • Shares rose 5.5% after fourth-quarter results beat expectations

AMSTERDAM (Reuters) – Dutch health technology company Philips (PHG.AS) It will cut another 6,000 jobs worldwide as it tries to restore its profitability and improve the safety of its products after recalling respirators that caused a loss of 70% of their market value.

The company said Monday that half of the job cuts will take place this year, adding that the other half will be achieved by 2025.

The new reorganization brings the total number of jobs announced by new CEO Roy Jacobs in recent months to 10,000, or about 13% of Philips’ current workforce.

It also adds to the string of technology-based companies to lay off workers, after companies including Alphabet’s Google (GOOGL.O)Microsoft (MSFT.O)Amazon (AMZN.O) and German software maker SAP (SAPG.DE) They announced thousands of layoffs to cut costs while preparing for tougher economic conditions.

Shares of Philips were trading up 5.5% at 0855 GMT, buoyed by fourth-quarter earnings that were much better than expected.

“There was a significant outperformance in the fourth quarter and the operational improvement measures are very significant,” ING analyst Mark Hesselink said in a note.

Jacobs took over the reins of the company last October as Philips continues to grapple with the fallout from recalling millions of ventilators used to treat sleep apnea over concerns the foam used in the machines could become toxic.

“What we are presenting today is, I think, a very solid plan to secure the future of Philips,” Jacobs told reporters. “The challenges we face are serious and we are tackling them head on.”

Jacobs said patient safety would be placed “squarely at the heart” of the new organization.

To improve profitability while investing in safety, Jacobs said, innovations will be targeted at “fewer projects, better resources, and more impact.”

Together, this 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 a single-digit average. Comparable sales growth throughout.

Improve results with a careful look

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

Adjusted earnings before interest, tax and depreciation (EBITA) in the last three months of 2022 were 651 million euros ($707.18 million), roughly flat from 647 million euros a year earlier, while analysts surveyed by the company had on average expected it to decline. to 428 million euros.

Similar sales rose 3%, rather than the 5% decline analysts had expected, as persistent supply chain problems eased.

But despite the improvement in component shortages that have plagued Philips for more than a year, Philips said the supply chain remains challenging and will only improve gradually.

It added that this is expected to result in similar low single-digit sales growth by high single-digit margin in 2023.

The projections exclude the impact of ongoing discussions with the US Department of Justice regarding the post-confidence settlement, litigation and ongoing investigations.

($1 = 0.9206 euros)

(Reporting by Bart Meagher). Editing by Tom Hogg, Sherry Jacob-Phillips, Christian Schmollinger, and Christina Fincher

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