© Reuters. FILE PHOTO: Philips Healthcare headquarters in Best, Netherlands August 30, 2018. Picture taken on August 30, 2018. REUTERS/Piroschka van de Wouw/File Photo
Author: Bart H. Meijer
AMSTERDAM (Reuters) – Dutch health technology company Philips will cut another 6,000 jobs worldwide as it tries to restore its profitability and improve the safety of its products after a ventilator recall knocked 70% off its market value.
Half of the job cuts will be phased out this year, the company announced Monday, adding that the other half will be implemented by 2025.
The new reorganization brings the total number of layoffs announced by new CEO Roy Jakobs in recent months to 10,000, or about 13% of Philips’ current workforce.
It also joins a string of tech companies shedding jobs, after companies including Alphabet (NASDAQ: ) Google, Microsoft (NASDAQ: ), Amazon (NASDAQ: ) and German software maker SAP announced thousands of layoffs to cut costs as they prepare for tougher economic conditions.
Philips shares were up 5.5% at 0855 GMT, helped by fourth-quarter earnings that were much better than expected.
“There is a significant decline in the fourth quarter and business improvement measures are very large,” ING analyst Marc Hesselink said in a note.
Jakobs took over management of the company last October as Philips continued to grapple with the fallout from the recall of millions of ventilators used to treat sleep apnea over concerns that the foam used in the machines could become toxic.
“I think what we are presenting today is a very strong plan to secure the future of Philips. The challenges we have are serious and we are facing them head on,” Jakobs told reporters.
Jakobs said patient safety will be put “at the center” of the new organization.
To increase profitability while investing in security, innovation will be focused on “fewer projects with better resources and more impact,” Jakobs said.
Together, this should lead to a low-teens profit margin, as measured by adjusted earnings before interest, taxes, depreciation and amortization (EBITA), by 2025, and a mid- to high-teens margin after that year, with mid-single-digit comparable sales growth over the period.
RESULTS ARE IMPROVING, WITH A 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 was 651 million euros ($707.18 million), almost flat from 647 million euros a year earlier, while analysts polled by the company had on average predicted it would fall to 428 million euros.
Comparable sales rose 3%, instead of the 5% decline analysts had predicted, as ongoing supply chain issues 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 gradually improve.
This was expected to lead to low-single-digit comparable sales growth at a high-single-digit margin in 2023, it said.
The outlook excludes the impact of ongoing discussions with the US Department of Justice on the post-impeachment settlement, and ongoing litigation and investigations.
(1 dollar = 0.9206 euros)