AMSTERDAM (Reuters) – Dutch health technology company Philips said on Monday it would cut 6,000 jobs to restore its profitability following a recall of respiratory devices that cut 70% of its market value.
Half of the job cuts will be done this year, the company said, adding that the other half will be done by 2025.
The new reorganization comes on top of a plan announced last October to cut the workforce by 5%, or 4,000 jobs, grappling 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.
Workforce reduction is expected to lead to a low teen profit margin, as measured by adjusted earnings before interest, taxes, and depreciation (EBITA), by 2025, and a medium to high teen margin beyond that year, with figure comparable sales growth across.
“Philips is not realizing the full potential of strong market positions as it faces a number of significant operational challenges,” said new chief executive officer Roy Jakobs.
The streamlined organization should also improve patient safety and quality and supply chain reliability, he added.
The company will continue to invest 9 percent of sales in research and development, but will focus on “projects with fewer resources, better resources and greater impact,” it said.
Amsterdam-based Philips also reported fourth-quarter Adjusted EBITA of 651 million euros ($707.18 million), nearly flat from a year-ago figure of 647 million euros.
Analysts in a survey compiled by the company on average had forecast that core profit would fall to 428 million euros.
Comparable sales increased 3% in the final months of 2022 as supply chain issues eased.
A shortage of components has troubled Philips throughout the year, reducing its sales by 3% over all of 2022.
Despite the improvement in the recent quarter, Philips said the supply chain remained challenging and will only improve further gradually.
That 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 US Department of Justice about a settlement following the recall and ongoing litigation and investigations.
($1 = 0.9206 euros)
(Reporting by Bart Meijer; Editing by Tom Hogue, Sherry Jacob-Phillips and Christian Schmollinger)