Dutch health technology company Philips announced on Monday that it will eliminate 6,000 jobs in an effort to restore profitability after a recall of respiratory devices significantly impacted its market value, which has fallen by 70%. According to the company, half of these job cuts will occur this year, while the remaining reductions will be implemented by 2025. This restructuring plan adds to an earlier initiative announced last October, which aimed to reduce the workforce by 5%, or 4,000 jobs, as the company continues to deal with the repercussions of recalling millions of ventilators used for treating sleep apnea due to concerns over potentially toxic foam used in the devices.
Philips anticipates that the reduced workforce will enable the company to achieve a low-teens profit margin, as measured by adjusted Earnings Before Interest, Taxes, and Amortization (EBITA), by 2025. Beyond that year, the company expects to reach a mid-to-high-teens margin, along with mid-single-digit comparable sales growth. New Chief Executive Officer Roy Jakobs stated that Philips is not fully capitalizing on its strong market positions due to several significant operational challenges. He emphasized that the simplified organization should enhance patient safety, quality, and supply chain reliability.
The company plans to maintain its investment in research and development at 9% of sales but will concentrate on “fewer, better resourced, and more impactful projects,” according to Jakobs. In its fourth-quarter report, Amsterdam-based Philips recorded an adjusted EBITA of 651 million euros ($707.18 million), which remained nearly stable compared to 647 million euros from the previous year. Analysts had predicted a decline in core profit to approximately 428 million euros. During the last months of 2022, comparable sales increased by 3% as ongoing supply chain issues began to ease. However, a shortage of components has plagued Philips throughout the year, resulting in a 3% decrease in overall sales for 2022.
Despite the positive trend in the last quarter, Philips acknowledged that the supply chain remains challenging and is expected to improve only gradually. The company projects low-single-digit comparable sales growth with a high-single-digit margin for 2023. This outlook does not account for the ongoing discussions with the U.S. Department of Justice regarding a settlement related to the recall, nor does it include the impact of ongoing litigation and investigations.
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