Philips scraps 6,000 jobs in drive to improve profitability

Philips scraps 6,000 jobs in drive to improve profitability

Philips office building in Warsaw, Poland on July 29, 2021. (Photo by Beata Zawrzel/NurPhoto via Getty Images)

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Dutch health technology company Philips said on Monday it would scrap 6,000 jobs to restore its profitability 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, adding that the other half will be realized by 2025.

New Chief Executive Officer Roy Jakobs told CNBC’s “Squawk Box Europe” on Monday it was a “necessary intervention to help us to become competitive and lean in the way we go forward in the market.”

“We have been working very hard to refocus on health technology, and we have now built a very strong portfolio there where we have 70% of number one or two positions,” he also told CNBC.

“But we have not been extracting the value out of those segments because we did not execute well. So the strategy I present today is very much focused on organic growth, focusing on the portfolio that we have and getting the most out of them.”

The new reorganization comes on top of a plan announced last October to reduce its workforce by 5%, or 4,000 jobs, as it grapples 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.

Philips share price one-year chart.

The reduced workforce should lead to a low-teens profit margin (adjusted EBITA) by 2025, and a mid-to-high-teens margin beyond that year, with mid-single-digit comparable sales growth throughout.

The simplified organization should also improve patient safety and quality and supply chain reliability, Jakobs added.

China’s reopening will potentially increase product demand in 2023, Jakobs told CNBC, although the company is still facing challenges in the market due to factors like employee sickness and hospitals being too overwhelmed to install its equipment.

Amsterdam-based Philips also reported fourth-quarter adjusted earnings before interest, taxes and amortization (EBITA) of 651 million euros ($707.18 million), nearly stable from 647 million euros a year before.

Analysts in a company-compiled poll on average had predicted core profit would drop to 428 million euros.

—CNBC’s Jenni Reid contributed to this story.

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